You can invest in the S&P 500 in many 529s. 529 is just a tax treatment for the account, not an underlying investment.
I use Illinois BrightStart. Note that Vanguard 500 (S&P 500 index fund) is one of the choices.
https://brightstart.com/investment-portfolios/individual/
Thank you for clarifying. I am having a baby and this is new to me. So basically I need to sign up for a 529. Within the 529, I can choose different funds to invest. Like an IRA?
From within the available choices, so more like a 401K. If you look at the Illinois link I included, they offer 17 individual fund choices, plus the age based options. So not unlimited choices like an IRA and you can’t choose something that’s not offered, but decent ones still offer a good variety and include low cost index funds.
You can use it anywhere. It’s just an investment account. You often want to choose the plan from the state where you live, as many states offer a state income tax break if you do that…..but not CA.
So choose any plan that you want. Fidelity and Vanguard also market plans directly. Those are still state plans, but you can get them directly from them.
You only need to do your home state if it gives you a state tax break. I live in Florida which doesn’t have state income tax, so when I started mine 20 years ago, I looked up which states had the best 529 plans and back then it was a middle America state that had never been on my radar. It was recommended because of the low management fees so to this day, my 529 is in still in a that state. And my daughter goes to college in a third state.
I use the Utah 529 in a state with no tax benefit for contributions. It has a very good selection of funds and target date options for people like you that may not have a lot of experience.
Yes, similar to an IRA or 401k your fund choices may be limited based on what they deem suitable investment vehicles for the intended goal of the account type but if you're talking basic S&P 500 Index Fund you're going to have options.
529 is an account type. You can invest in sp500 inside a 529 and get the tax advantages plus the performance. It's like saying "why put this dollar in my wallet, i could leave it on the table"... the dollar is the same whether it's in the wallet or not.
Yes and please make sure it gets invested. A post from a couple days ago had OP asking why the 529 plan funds he had for his child hadn’t grown a penny in the 5 years he had it. Turns out OP moved funds into the 529 plan but had no clue they needed to invest the money as well
A 529 is actually really awesome now cause you can roll up to 35k into a Roth IRA. So if you have kids you can really give them a jump start in their wealth savings if you do that for them
So if you have kids and open up a 529, after 15 years, you can roll up to 35k* into a Roth IRA for them. You still have to follow the year contribution limits (aka, you can’t just roll all 35k over at once, can only roll over the max per year).
So if you start a 529 for your kid when they are born, once they turn 16+ and get a summer job, or even a job in school, you can take some of that money and roll it into a Roth IRA for them. It will basically set your children up for life as long as they don’t touch that money. Imagine having 35k in a Roth IRA by the time you hit 19-20 years old!
this seems like a smart thing to do intentionally. I have a 2 year old with 18k in his 529. I'm thinking I might want to front-load it even more? Trying to figure out how much I can target. What we guessing college is going to cost in 16 years?
But even if I am budgeting for his college, I like the idea of 15 years from now starting to roll over into a ROTH IRA for him 7k per year for 5 years. Like you said, by the time he's 20 he'd have 35k in a Roth. If it doubles every decade, it's going to 70k at 30, 140k at 40, 280k and 50 and 560k at 60. Nice little retirement benefit.
100%. I’m doing that exact same thing. I can probably afford to help my kids with college, so I’m def gonna try to roll 35k into their Roth.
Happy cake day also!
So yeah technically you are right, but if you can afford to not use 35k of it for college, you are just gonna give your children a lifetime of wealth by the time they are 65
>Yearly limits of putting into the 529? What is the limit?
No the yearly IRA limit (this year was $7000). You can't just rollover the entire $35k at once, it would need to be split over several years because the limit applies regardless of the source of funds.
Different 529 plans have different contribution limits too, but more than IRAs have.
Yearly limits of rolling over. He said earlier you can’t roll over the $35k all at once, you have to follow the yearly limits with a cap of $35k total.
I think the point is to make parents slightly less concerned about potentially over funding the account. Unless you have a younger child that you could pivot the excess money towards you could have a scenario where you think your kid might go to a pricier school than they ultimately attend. You don't really know where your kid will be attending until their senior year. Plenty of kids have high hopes and get rejected from from their dream school and end up attending a cheaper safety school. You might have a general feel maybe junior year, but to have a meaningful amount of time for growth for any expensive institution you really need to have deposited years earlier before you're really sure.
If you don’t use it for college and it’s at least 25 years old you can roll up to the annual limit into a Roth for your kid up to $35k total.
https://www.schwab.com/learn/story/529-to-roth-ira-rollovers-what-to-know
That's true of many states.
It's basically a Roth IRA for college. (And if unused, up to $35k can be rolled into an actual Roth IRA.)
The states which give tax breaks are just from state taxes, not federal.
I don’t see it spelled out in any of the other comments so just in case you don’t know, the gains on your 529 account don’t get federally taxed as capital gains when you take it out (as long as it’s used for educational purposes, but even if you don’t, you can roll it into your kids Roth IRA).
That’s on top of the fact that it might save you money on your state income tax when you put it in.
The amount you put in a 529 grows tax free and is tax free when you withdraw and pay for college. You can invest in a S&P500 index fund in a 529k account. The 529k is just a special account and there's different investment options inside that account, some are index funds like the S&P500.
If you invest in a S&P500 index fund in a normal brokerage account, if you sell the fund to pay for things like college, you owe taxes on the capital gains.
Seems like enough people covered the “you can invest in whatever you want with a 529” topic.
Getting past that, to me the Pros: you get tax advantaged growth, small tax exemptions and you can withdraw for k-12 expenses as well as college or trade schools. Con’s: limited tax exemption benefits and only able to withdraw for education.
There are other investment vehicles that allow you to have more flexibility on when to withdraw, just without some of the tax benefits.
Some tradeoffs. Can always split the difference and hedge either way.
Up to $35k after 15 years can be rolled into a kids Roth IRA so even if you kid doesn't decide to go to college you have an option that doesn't face a penalty. You only really face some risk if you don't have any younger kids that you could change the beneficiary towards.
Technically you can withdraw for any reason, but withdrawal for any non qualified expenses the growth is subject to both income tax and a 10% penalty. In some states there may be an additional penalty. As some other comments note up to $35k can be rolled over into a Roth 15 years after the account is opened. There are a few other exceptions as well that can avoid penalties.
529 is great and there is little downside. We put ~$200/month in for each of our kids from birth. My 19 year old just finished first year of college. She got a full tuition scholarship so 529 pays for room, board, books. Couldn't be easier to get reimbursed. I'm in FL and selected Utah's 529 due to consistently high ratings. Very pleased.
The more you research 529s the more you realize just how flexible they are. Keep reading up and start saving what you can in one. But be sure your retirement is fully funded first. You can get loans for schools, but not retirement.
If you plan to save for college education than nothing can beat 529. You can invest in S&P500 index or total stock index fund or a lot of other options except individual stocks. If you don't plan to use these funds for college than 529 is not a good idea.
If you plan to save for college education than nothing can beat 529. You can invest in S&P500 index or total stock index fund or a lot of other options except individual stocks. If you don't plan to use these funds for college than 529 is not a good idea.
What happens if (my future 18 year old) doesn’t go to any type of school or like some emergency happens? Then I just have to pay the 2.5 for an unqualified withdrawal?
Seems risky to just “assume” in 18 years he/she will go to college? Who knows maybe they will become a self employed start up or something. This is just an example
Bigger question: what happens if I have all this money in 529 college fund only to have child not going to college or trade school or any other related qualified withdrawals
You can invest in the S&P 500 in many 529s. 529 is just a tax treatment for the account, not an underlying investment. I use Illinois BrightStart. Note that Vanguard 500 (S&P 500 index fund) is one of the choices. https://brightstart.com/investment-portfolios/individual/
Thank you for clarifying. I am having a baby and this is new to me. So basically I need to sign up for a 529. Within the 529, I can choose different funds to invest. Like an IRA?
From within the available choices, so more like a 401K. If you look at the Illinois link I included, they offer 17 individual fund choices, plus the age based options. So not unlimited choices like an IRA and you can’t choose something that’s not offered, but decent ones still offer a good variety and include low cost index funds.
Ok great! If I choose the illionois one does it mean I have to choose a school in illionois itself. I (and family) are in California.
You can use it anywhere. It’s just an investment account. You often want to choose the plan from the state where you live, as many states offer a state income tax break if you do that…..but not CA. So choose any plan that you want. Fidelity and Vanguard also market plans directly. Those are still state plans, but you can get them directly from them.
You only need to do your home state if it gives you a state tax break. I live in Florida which doesn’t have state income tax, so when I started mine 20 years ago, I looked up which states had the best 529 plans and back then it was a middle America state that had never been on my radar. It was recommended because of the low management fees so to this day, my 529 is in still in a that state. And my daughter goes to college in a third state.
If you choose one from your state, you MAY get tax exemptions….depending on state.
No. They can go to school anywhere
I use the Utah 529 in a state with no tax benefit for contributions. It has a very good selection of funds and target date options for people like you that may not have a lot of experience.
Yes. 529 just means it will.be used for certain things which allows for tax benefits
Yes, similar to an IRA or 401k your fund choices may be limited based on what they deem suitable investment vehicles for the intended goal of the account type but if you're talking basic S&P 500 Index Fund you're going to have options.
Yes, you got it.
529 is an account type. You can invest in sp500 inside a 529 and get the tax advantages plus the performance. It's like saying "why put this dollar in my wallet, i could leave it on the table"... the dollar is the same whether it's in the wallet or not.
Thank you for sharing. So I need to sign up for 529, inside the 529, and I can invest in different funds. Got it. Like an IRA
Yes and please make sure it gets invested. A post from a couple days ago had OP asking why the 529 plan funds he had for his child hadn’t grown a penny in the 5 years he had it. Turns out OP moved funds into the 529 plan but had no clue they needed to invest the money as well
Thank you for highlighting that
A 529 is actually really awesome now cause you can roll up to 35k into a Roth IRA. So if you have kids you can really give them a jump start in their wealth savings if you do that for them
Can you explain more in that?
So if you have kids and open up a 529, after 15 years, you can roll up to 35k* into a Roth IRA for them. You still have to follow the year contribution limits (aka, you can’t just roll all 35k over at once, can only roll over the max per year). So if you start a 529 for your kid when they are born, once they turn 16+ and get a summer job, or even a job in school, you can take some of that money and roll it into a Roth IRA for them. It will basically set your children up for life as long as they don’t touch that money. Imagine having 35k in a Roth IRA by the time you hit 19-20 years old!
this seems like a smart thing to do intentionally. I have a 2 year old with 18k in his 529. I'm thinking I might want to front-load it even more? Trying to figure out how much I can target. What we guessing college is going to cost in 16 years? But even if I am budgeting for his college, I like the idea of 15 years from now starting to roll over into a ROTH IRA for him 7k per year for 5 years. Like you said, by the time he's 20 he'd have 35k in a Roth. If it doubles every decade, it's going to 70k at 30, 140k at 40, 280k and 50 and 560k at 60. Nice little retirement benefit.
100%. I’m doing that exact same thing. I can probably afford to help my kids with college, so I’m def gonna try to roll 35k into their Roth. Happy cake day also!
Yea but isn’t the point of the 529 to use for college? (Sorry I know these are basic questions) thanks for being patient.
So yeah technically you are right, but if you can afford to not use 35k of it for college, you are just gonna give your children a lifetime of wealth by the time they are 65
Oh so meaning in the 529, let’s say I have 85k saved up. And college only costs 50k$. Then the remaining 35k I can roll into an IRA for them?
Yep exactly. Still have to follow the yearly limits though, but you can roll a max of 35k into a Roth IRA for them.
Yearly limits of putting into the 529? What is the limit?
>Yearly limits of putting into the 529? What is the limit? No the yearly IRA limit (this year was $7000). You can't just rollover the entire $35k at once, it would need to be split over several years because the limit applies regardless of the source of funds. Different 529 plans have different contribution limits too, but more than IRAs have.
I understand thank you
Yearly limits of rolling over. He said earlier you can’t roll over the $35k all at once, you have to follow the yearly limits with a cap of $35k total.
I think the point is to make parents slightly less concerned about potentially over funding the account. Unless you have a younger child that you could pivot the excess money towards you could have a scenario where you think your kid might go to a pricier school than they ultimately attend. You don't really know where your kid will be attending until their senior year. Plenty of kids have high hopes and get rejected from from their dream school and end up attending a cheaper safety school. You might have a general feel maybe junior year, but to have a meaningful amount of time for growth for any expensive institution you really need to have deposited years earlier before you're really sure.
If you don’t use it for college and it’s at least 25 years old you can roll up to the annual limit into a Roth for your kid up to $35k total. https://www.schwab.com/learn/story/529-to-roth-ira-rollovers-what-to-know
If you are in California, your contributions to 529 are not exempted from taxes. Only the investment gains are.
That's true of many states. It's basically a Roth IRA for college. (And if unused, up to $35k can be rolled into an actual Roth IRA.) The states which give tax breaks are just from state taxes, not federal.
California also has an additional 2.5% penalty on unqualified withdrawals on top of the federal 10% penalty.
Indiana gives a 20% tax credit on 529 contributions. Dump that 20% back into the 529.
my parents put prob $20k into a 529 when i was born, and at 18 i had $120k. just do it
I don’t see it spelled out in any of the other comments so just in case you don’t know, the gains on your 529 account don’t get federally taxed as capital gains when you take it out (as long as it’s used for educational purposes, but even if you don’t, you can roll it into your kids Roth IRA). That’s on top of the fact that it might save you money on your state income tax when you put it in.
This is great. You don’t pay capital gains taxes on the gains? And the money I put into it reduces my taxable income?
The amount you put in a 529 grows tax free and is tax free when you withdraw and pay for college. You can invest in a S&P500 index fund in a 529k account. The 529k is just a special account and there's different investment options inside that account, some are index funds like the S&P500. If you invest in a S&P500 index fund in a normal brokerage account, if you sell the fund to pay for things like college, you owe taxes on the capital gains.
Seems like enough people covered the “you can invest in whatever you want with a 529” topic. Getting past that, to me the Pros: you get tax advantaged growth, small tax exemptions and you can withdraw for k-12 expenses as well as college or trade schools. Con’s: limited tax exemption benefits and only able to withdraw for education. There are other investment vehicles that allow you to have more flexibility on when to withdraw, just without some of the tax benefits. Some tradeoffs. Can always split the difference and hedge either way.
There are no significant drawbacks to putting at least a little bit in a 529 assuming your retirement is well funded.
Make sure your own retirement is fully funded first before a 529 imo
Up to $35k after 15 years can be rolled into a kids Roth IRA so even if you kid doesn't decide to go to college you have an option that doesn't face a penalty. You only really face some risk if you don't have any younger kids that you could change the beneficiary towards.
No. It can go to grandchildren and then greatgrandchildren etc
Pro: The profit that you make on 529 is tax free. Con: It can only be used for education.
Technically you can withdraw for any reason, but withdrawal for any non qualified expenses the growth is subject to both income tax and a 10% penalty. In some states there may be an additional penalty. As some other comments note up to $35k can be rolled over into a Roth 15 years after the account is opened. There are a few other exceptions as well that can avoid penalties.
529 is great and there is little downside. We put ~$200/month in for each of our kids from birth. My 19 year old just finished first year of college. She got a full tuition scholarship so 529 pays for room, board, books. Couldn't be easier to get reimbursed. I'm in FL and selected Utah's 529 due to consistently high ratings. Very pleased. The more you research 529s the more you realize just how flexible they are. Keep reading up and start saving what you can in one. But be sure your retirement is fully funded first. You can get loans for schools, but not retirement.
Most of this has been said but certain states also have tax benefits. MA for example offers a tax deduction of $2000 per year from the state tax.
If you plan to save for college education than nothing can beat 529. You can invest in S&P500 index or total stock index fund or a lot of other options except individual stocks. If you don't plan to use these funds for college than 529 is not a good idea.
If you plan to save for college education than nothing can beat 529. You can invest in S&P500 index or total stock index fund or a lot of other options except individual stocks. If you don't plan to use these funds for college than 529 is not a good idea.
What happens if (my future 18 year old) doesn’t go to any type of school or like some emergency happens? Then I just have to pay the 2.5 for an unqualified withdrawal? Seems risky to just “assume” in 18 years he/she will go to college? Who knows maybe they will become a self employed start up or something. This is just an example Bigger question: what happens if I have all this money in 529 college fund only to have child not going to college or trade school or any other related qualified withdrawals
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