My kids will be heading to college toward the end of this decade. I currently have 36k in each of their 529 accounts (down from about 45k due to the market). The last few years my parents have been giving them each 1k a year to save in their 529 accounts and they give me a nice cash gift that i also just put towards their college savings. Assuming that continues, that’s going to be 40-50k for each kid between now and when they theoretically finish a 4 year degree. I could put in my own savings as well, but this already seems like enough.
So what is the strategy here? I can get a modest tax deduction from my state by putting this in their 529 accounts, but where do i run into issues actually using the money? The kids are smart, but i can’t see spending more than the 25k a year for the state fees.
In CT, back in the day, I’d drop 10K into the 529 plan a month before I needed to pay tuition. Then withdraw the 10K, plus whatever, and get a state tax deduction for the 10K (limit at the time). Not sure if this is still a thing or if other states do this.
That’s a good point, i can take probably take advantage of the state deduction at a later date.
Looking online, i can withdrawal the contributions without penalty, but will pay income tax and a 10% penalty on the earnings. If i have put in 50k of contributions that grow to 100k, does that mean i can use the 50k in earnings to pay for college expenses and/or give to a grandkids 529 one day, and withdrawal back the 50k in contributions without penalty?
Expenses that are real but not allowed as 529 withdrawals:
-transportation (plane tickets, parking, etc) to get to/from school
-SAT/ACT fees and prep course fees as applicable
-student health insurance if applicable
-room & board expenses that exceed the school’s cost of attendance
-trips to visit colleges that might be of interest
Probably some others that I’m not thinking of. If your income is too high for need-based financial aid then I like a mix of 529 and UTMA/UGMA. Here’s another post I made on this topic with more details about the pros & cons of UGMA/UTMA accounts. Also see the two posts before it, or really the whole thread.