Alternatives to 529?

Question

Paul Allen · Answer

That was a really good article by Brandon Hall. If you have enough income from your real estate business to arrange hiring your children as he suggests, I would do it. Otherwise, I am a fan of the Virginia 529 plan (for Virginians).

Your question seems to be "how can I save for college in some way other than the program specifically established to give me tax breaks to save for college?"  The answer is there aren't many alternatives that come close to the tax benefits of the 529 plan. If you want to retain maximum flexibility for using the investment for something other than education, you are going to forgo some tax benefits.

That said, the Roth IRA is a reasonable option, but you are limited to withdrawing only the contributions until age 59.5

One of the reasons I like the Virginia 529 plan is there is no minimum time the money must be in the account to get the state income tax break. We had some money outside the 529 that we needed to use for college expenses. We dumped it into the Virginia 529 College Wealth plan (an FDIC-insured bank account) and then withdrew it a short time later to pay expenses. It didn't get us any federal tax breaks, but it qualified for the Virginia tax deduction. I don't know whether or not MD's 529 plan allows something similar.

Congrats on the birth of your son, by the way!  Best of Luck on Your Journey!

Paul Allen · Answer

I am of the opinion there is more than one way to skin a cat @Keith Thompson

Not to get too high on my soap box, but I have more freedom than most financial advisors to have that opinion because I don't get paid to sell financial products and my fee is not based on the percentage of your assets I manage.  Therefore my paycheck isn't tied to the solution you choose.

If you were my client I would just want to run the math through with you on the SDIRA in lieu of LTC scenario. It's all well and good to say you're doing it that way, but the relentless rules of humble arithmetic apply. I'd want to be satisfied you're doing it in such a way that is actually providing you the protection you require. (Although, many of the LTC policies I see are so caveated that it wouldn't be difficult to replace the coverage they offer with some type of self-insuring plan.)

I like creative thinking. You might be the only guy I know who is making self-insuring LTC arrangements and also has a whole life policy. I'd like to hear that story someday.

Best of Luck with Your Real Estate Investing.

Keith Thompson · Answer

@Jim Stevenson - Since you're posting the question on BP, I assume you are an investor in some aspect of RE. I've heard a couple of podcasts mention purchasing a rental with the intention of turning it over to child x,y,z when they come of age to use for education, or -- life.

I wholly support that strategy as it remains in your name and income/options remain yours until such time as you actually turn it over. This way, if your life goes south for some reason, it's fully available to draw upon and if you remain shiny-side-up, it grows until used for the intended purpose.

My bride & I did a similar thing, purchased a foreclosure with the intent of it being the college fund, and ended up not needing to cash it in to pay for the kids college.

I'm more in line with @Sastry Srini on this and a bit less so with @Mark Welp. We're also doing investing in both Traditional & Roth SDIRAs, which we will use to self-fund Long Term Care vs buying specific insurance.  I think of insurance vs investing a lot like renting vs buying.  Though I also have a Whole-Life and other insurance policies, we use both insurance AND investing in a mix that heavily favors investing.  We really prefer the SDIRA route.  We like the flexibility of use and access in case of life emergencies and the return rates that SDIRA investing provides. I will tell you that non of the 5 financial advisers we've spoken with really understood the SDIRA angle and only 2 supported our self-funding of LTC.

I'm curious what @Paul Allen thinks of this as he's an actual Financial Adviser and posted on this thread.

Rob Myers · Answer

I had similar concerns starting our 529s early on. Are you going to have more than one child?  I convinced myself that having too much on hand and paying a penalty on the earnings was a very small risk since we have 3 kids and I am able to move funds between accounts without a penalty.  1 out of the group may not go but that means 2 and 3 will be sufficiently funded.  Worst case, I can take what savings is left and pursue continuing education for myself or my wife.

Alternatives to 529?

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