#47204 - 01/13/12 07:00 PM
Changes needed in 529s
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Visitor
Registered: 01/05/12
Posts: 2
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I see a lot of rose-colored glasses on this site regarding 529s, and despite massive withdrawals from 529s lately, the media too.
My family does pretty well and I live in a higher-net worth area. Pretty much to a person my self and my peers with 529s have pretty much given up on them or consider them to be a total scam. Many of us work in finance, investments or at least know a lot about investing. We're not typical retail "dumb money". Not rich either.
Maybe Joe, or someone on this site has influence with the industry. Maybe not. But the smart money is leaving 529s, probably for good.
529s have been a total loser for my kids' savings. Fortunately, just under 1/2 of our college assets have been put into 529s, the rest into I Bonds, high-yield saving accounts and individual stocks (not bogus mutual funds). While the 529s have languished, the other half has done well, more than offsetting any taxes paid on dividends and capital gains.
If the 529 industry really wants to help parents, things need to change:
1. Eliminate the 1x a year trading rule. The way you make money is buy-low-sell-high. Sometimes it's fine to buy and hold, other times things change and its time to take profits.
2. Open the plans up to ANY investment. Bonds, stocks, gold, CDs. Allow for small-dollar regular investing (like a DRIP).
3. Allow for penalty-free withdrawals. It's my money. Sure, you pay capital gains or dividend tax but why an extra 10%?
I will say that if you have serious money ($250K+) to invest, the tax savings, even from a guaranteed or FDIC option makes a difference, but for regular people, the flaws far outweigh the benefits.
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#47205 - 01/15/12 03:38 PM
Re: Changes needed in 529s
[Re: asult]
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Member
Registered: 11/16/03
Posts: 1141
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No rose-colored glasses here at all.
I work in the finance sector and have no doubt that 529s are just another money-grab mechanism for Wall St. and state governments to take money from good people with good intentions.
Notwithstanding, it is a tax advantaged savings/investment vehicle and if you know what you're doing, the once a year limit for making changes is sufficient.
If you can't comply with the rules/limitations/fee structure then you should do exactly as you're saying - just do it in a taxable account if you're confident you'll come out ahead.
We have one 529 for our 14 year old daughter with Fidelity and it has done well - up every year and making a good return. We also opened a second 529 for my nephew at his first birthday because the market had just been trashed - it is up significantly and we've moved funds with the yearly change to shelter those gains.
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#47206 - 01/16/12 04:47 AM
Re: Changes needed in 529s
[Re: rsinj]
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Member
Registered: 01/01/06
Posts: 935
Loc: salem, OR
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You really needed to think about the program on your first contribution. Been saying what you have discovered since I started on this board in '06.
1.If your state has a tax credit, Invest in Late Dec. and make a qualified withdrawal in Jan. Obviously you must have a kid that qualifies.
2.You got to have couple of accounts of different owners ( husband, wife, child) with the child as beneficiary, so that you can rebalance thu new investments or withdrawal.
3.You have to dollar cost into and out of, the 529 accounts.
4.And you're correct OP. Good for you. We used 529 only for years 2002-06 (falling markets 02,03,04 and rising markets 05,06), when we had a kid in school.
5. We also used Debt Management, UGMA stocks and UGMA EE's. Kid paid a lot of taxes as a minor but there was flexibility.
Edited by itstoomuch (01/16/12 04:50 AM)
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#47207 - 01/16/12 03:07 PM
Re: Changes needed in 529s
[Re: itstoomuch]
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Member
Registered: 01/23/02
Posts: 1310
Loc: Chicago area
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I have to disagree. In the 8 years since I established 529's for my children, and began tapping into the one for my oldest child a year ago, I am up a total of 56% in that child's 529 (If American Funds is calculating my basis and gain portions of each distribution correctly). That's real tax free money--who can argue with that? And with the Kiddie Tax getting more onerous over that period, avoiding/minimizing it like I did thanks to the 529 program makes my 529 experience even sweeter.
All I did was invest in multiple funds within American Funds and did not try to market-time. To put it simply, diversification, time and quality funds were the heroes.
I do agree that some of those restrictions that asult listed should be relaxed, but it's not fair or accurate to say 529's are a waste or a scam.
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#47226 - 01/31/12 01:44 PM
Re: Changes needed in 529s
[Re: asult]
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Moderator
Registered: 06/24/04
Posts: 532
Loc: Michigan
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I couldn't disagree with you more, on most of your points. 1) The way to make money is to buy low and sell high (or shorting), sure. But most people ... 99.9% of them, do not have the time it takes to time the market period. Anyone saying otherwise is lying through their teeth trying to sell something. For the vast majority of people, buying a solid investment is the way to go, not timing things that are so far out of their control and sight. 2) 529s allow for 'small dollar investing', like DRIPs. I have 5 accounts, all have automatic monthly or bi-weekly deposits. 3) 10% penalty, just like Roths / IRAs. This is a standard practice in all our tax deferred investment accounts. I don't see a problem with it. "I Bonds, high-yield saving accounts" .... seriously I would NEVER consider these to be investment strategies. high-yield savings accounts are poor since a high-yield money market from the same investment firm / bank almost always pays more AND if you are taking money out more than 6 times a month (the only difference between savings and money market accounts) then you aren't really investing you are just using it as a pass through. Individual stocks, great, this I would love to see, but only for me and the .1% of people who have the time and understanding of what to do. For the rest, it's a recipe for disaster ... unfortunately sometimes the 1% has to suffer so the 99% can't shoot themselves in the foot. I see a lot of rose-colored glasses on this site regarding 529s, and despite massive withdrawals from 529s lately, the media too.
My family does pretty well and I live in a higher-net worth area. Pretty much to a person my self and my peers with 529s have pretty much given up on them or consider them to be a total scam. Many of us work in finance, investments or at least know a lot about investing. We're not typical retail "dumb money". Not rich either.
Maybe Joe, or someone on this site has influence with the industry. Maybe not. But the smart money is leaving 529s, probably for good.
529s have been a total loser for my kids' savings. Fortunately, just under 1/2 of our college assets have been put into 529s, the rest into I Bonds, high-yield saving accounts and individual stocks (not bogus mutual funds). While the 529s have languished, the other half has done well, more than offsetting any taxes paid on dividends and capital gains.
If the 529 industry really wants to help parents, things need to change:
1. Eliminate the 1x a year trading rule. The way you make money is buy-low-sell-high. Sometimes it's fine to buy and hold, other times things change and its time to take profits.
2. Open the plans up to ANY investment. Bonds, stocks, gold, CDs. Allow for small-dollar regular investing (like a DRIP).
3. Allow for penalty-free withdrawals. It's my money. Sure, you pay capital gains or dividend tax but why an extra 10%?
I will say that if you have serious money ($250K+) to invest, the tax savings, even from a guaranteed or FDIC option makes a difference, but for regular people, the flaws far outweigh the benefits.
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