529 Plans Questions And Answers
Q: Please tell us to stick to our guns about college tuition. Our scholar got into a couple of state schools in Virginia, and this was our original guideline for college support: We’d pay for in-state tuition. If she found scholarships or other grants — but not loans — we’d pay that amount. A school she loved admitted her, but not with enough grants to make up the difference. So Blacksburg, here she comes! We don’t qualify for need-based aid, and the fabled scholarships that are everywhere don’t really exist. But even more basically, outside of 5-7 exceptions, it’s not worth stretching beyond your budget or (gasp!) taking out loans to pay today’s overpriced tuition. Right? Please check my work — I don’t like telling my daughter no, but I believe we’re putting our 529 in the right place.
A: You are acting correctly. Maintain your plans. There are no loans. My husband and I were in the same boat with our eldest child. Wonderful young man. Excellent student. AP student. But not enough to attend an out-of-state school without incurring debt. No, sir. We had enough to fund tuition at the University of Maryland, College Park, as well as a hefty scholarship. Terps, go! When your daughter graduates debt-free, she will be grateful.
Q: At 63 and working for a state college, where should I put extra funds for retirement in three years? And what type of investments? Index funds? We’re retired military, so we do have a pension, and we have a $1.25 million traditional IRA from my old 401(k) before quitting and following my wife’s Air Force career.
A: Wow! You have $1.2 million in retirement savings and are asking me what to do. You’ve got it. You did an excellent job. However, if you want a check on your plan or assistance deciding where to invest extra dollars, it’s time to meet with a fee-only planner. Hire someone to review your entire strategy and retirement goals, and you’ll have a solid idea of where or how to invest the extra income after that. The National Association of Personal Financial Advisors (NAPFA) is a good place to start.
Q: Hi Michelle! I miss your weekly chats. My question is: I have 529 accounts for my kids (4 and 2). My friend’s financial adviser told them that UTMAs are a better idea. I’m not familiar with UTMAs. What are they, and should we be using them instead of 529s?
A: By using 529 plans, I was able to send all three of my children to college without incurring any financial stress. When compared to UTMAs, these plans provide more tax savings.
Let me explain why I dislike UTMAs: You cannot take money back once you contribute it under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). It becomes your child’s property when they reach the age of majority, and they can use it for whatever they want, even if you meant it for their college fees. Furthermore, UTMAs do not allow you to modify the beneficiary.
A 529 plan, on the other hand, allows you more control. You have the authority as the account owner to handle the funds and even change the beneficiary to another qualifying family member if necessary. This adaptability is what makes 529 plans so appealing to many families.
Q: I filed my taxes by mail six weeks ago, and I’m still waiting for my refund. How can I find out the status of my return? The IRS Where’s My Refund tool isn’t helping.
A: If you’re having problems with your tax refund and need more information, you can contact the IRS, albeit they may not be able to provide any extra information. Another approach is to continually visiting the IRS website’s ‘Where’s My Refund?‘ function. Refunds might sometimes be delayed owing to a manual examination of your return, which could explain why you can’t get updates using the IRS refund tool.
Q: We have two 529 plans for our kids. One kid went to college and will graduate in May, and the other went for two years and is done. What’s the best use of the “leftover” 529 money? Roll into a Roth IRA for the two-year student beginning in 2024? Keep it in the 529 for a future grandchild? Should we allow the college graduate to use it for graduate school (although we didn’t promise to pay for graduate school)? Trying to be fair is hard! Thanks for any advice.
A: We have money left over in two of our 529 plans for our children. We utilized some of it to send our eldest to graduate school debt-free. We didn’t need all of the money we had saved for one of our children’s schooling because she won a full scholarship for three out of four years. Our son, who finished with a math degree, is now returning to school for more instruction. We chose to pass the scholarship child’s remaining funds to her brother. We had told them from the start that this money was for education and might be shifted or dispersed based on need. We elected to keep the monies and assist our kid with his graduate studies. Alternatively, we might save it in case our other child decides to pursue more education or even save it for a future grandchild. As long as we don’t need the money ourselves, it’s best to keep it invested and support others in obtaining a college education.
Q: What guidance can you share for choosing a 529 college savings plan for a grandchild?
A: Wonderful news! Beginning next year, 529 plans formed by grandparents will have no effect on financial aid. Consider whether your state provides a tax break. Remember to check the fees before opening the account. Age-based plans, like target-date retirement funds, are handy since they can be put up and forgotten about. Visit savingforcollege.com for more information.
I recommend obtaining a copy of Michelle Singletary’s Money Milestones if you’re seeking for timeless personal finance advice.
Q: I got a $5k raise and am 3-4 years from retirement. Should I put the extra money in our university’s 403(b), a regular ROTH, or a regular index fund for these 3-4 years? Thanks. I’m 62.
A: Excellent question because it demonstrates vision. You are an excellent candidate for hiring a fee-only planner to review your whole retirement financial plan. You should double-check that you have enough cash to cover your expenses for a year or two. Get a retirement health checkup.
Q: What are your thoughts on estate planning for childless women in their late 30s or early 40s? Especially if we own real estate and are interested in leaving money to causes we believe in, e.g., scholarships for girls and women? Would appreciate your advice. Love your work and grateful for all the wisdom you’ve shared!
A: If you have stuff, make a will. It’s not about being single, married or childless. If you have assets that can benefit others, definitely create an estate plan.
Read the following columns on the topic. It will make you get a will.
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