529 College Savings Plan Flexibility: My529 Sends Money To All 50 States

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My quarterly statement told me that the My529 plan (formerly Utah Educational Savings Plan) has been around for 25 years now, and included the map above which has dots from all the different places that they have directly sent withdrawals. All 50 states are covered. This is good reminder to examine the flexible options that 529 plans provide, many of which were added relatively recently:

  • Save and invest using the 529 plan custodian from any state. You don’t need to use the 529 plan from your home state (although you might get a tax break if you do – see below).
  • Easy to accept outside gifts directly into your 529 balance. Just as people like to use gift cards instead of cash, it can be easier to ask for a gift directly to your child’s 529 plan instead of the latest YouTube-fueled toy. You can often just send a link and the money goes directly into your 529.
  • Many investment options. You can choose an auto-pilot investment similar to a target-date fund (TDF), or you can mange your own glide path using a mix of active and/or passive index mutual funds. You can even stay super-conservative and invest in stable value funds or bank CDs.
  • Spend in any state. You don’t need to use the money towards a college in your home state.
  • Spend at a variety of educational options. 529 funds can be used at universities, colleges, certain overseas/international programs, trade and technical schools, apprenticeships, continuing education for adults, or K-12 private tuition.
  • Spend beyond tuition. 529 funds can be used toward room, board, fees, books, computers, supplies and equipment that are required by those educational institutions.
  • Scholarship exemption. If you end up receiving a scholarship, you can withdraw that amount from the 529 without paying the 10% penalty (normal income taxes on gains will still apply if not used towards qualified educational expenses).
  • Spend on student loans. 529 funds can be used toward the principal or interest on qualified student loans (up to $10,000 lifetime maximum for the designated beneficiary and each of their siblings).
  • Change beneficiaries. You can easily transfer 529 funds to another beneficiary, for example a sibling, nephew/niece, or even yourself. You can transfer funds from one 529 custodian to another.
  • Save for the next generation. With any leftover amount, you can even change the beneficiary to the next generation (grandchild), although it would be considered a gift for tax purposes. Still, even a small upfront gift can to a big number if left to grow for decades.

My eldest child is 8 years old, so that means I’ve been contributing to her 529 plan for 8 years, and she’ll be making withdrawals in perhaps only 10 more years! Many fintech startups are offering custodial brokerage accounts now, and while I do think there is a teaching opportunity there when she’s a teenager, until then I only plan on funding the 529 account. The investments grow tax-free, adjust automatically with age, don’t create any tax reporting hassles, and are flexible enough for my expectations. By starting early, the tax-free growth benefit can potentially save thousands of dollars in taxes.

More 529-related posts:

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Coursera: Free Courses 2021 New Year Promotion

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Online education site Coursera is offering a Learn a New Skill for Free in 2021 promotion with selected courses free until January 31, 2021. Here are a couple that are related to finance:

For example, you should see the $49 normal price adjusted to zero if you enroll in one of the courses above after visiting the promo link.

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Best 529 College Savings Plan Rankings 2020 – Morningstar

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Investment research firm Morningstar has released their annual 529 College Savings Plans gold/silver/bronze medalist ratings for 2020. While the full ratings and plan analysis for every individual plan are restricted to paid premium members, the vast majority are mediocre and can be ignored. You choices are pretty much either your in-state plan for the tax benefits, or the best overall plan if you don’t have good in-state perks.

Morningstar changed their methodology slightly for 2020. The two changes that caught my eye were (1) the elimination of “Performance” as a standalone judged category, and the elimination of judging advisor-sold plans primarily against each other. Past performance is not a great predictor of future returns, while all fees are.

Here are the Gold-rated plans for 2020 (no particular order). Morningstar uses a Gold, Silver, or Bronze rating scale for the top plans and Neutral or Negative for the rest.

Utah My529 and Illinois Bright Start Direct-Sold were both Gold last year as well. California Scholarshare and Virginia Invest529 were Gold last year but downgraded to Silver for 2020.

Here are the consistently top-rated plans from 2011-2020. I’ve been tracking these rankings roughly since my first child was born. The plans below have been rated either Gold or Silver (or equivalent) for every year the rankings were done from 2011 through 2018. The Virginia CollegeAmerica Advisor-Sold plan was removed from the list as it was downgraded to Bronze in 2020. No particular order.

  • T. Rowe Price College Savings Plan, Alaska
  • Maryland College Investment Plan
  • Vanguard 529 College Savings Plan, Nevada
  • CollegeAdvantage 529 Savings Plan, Ohio
  • My529, formerly the Utah Educational Savings Plan

The “Five Four P” criteria.

  • People. Who’s behind the plans? Who are the investment consultants picking the underlying investments?
  • Process. Are the asset-allocation glide paths and funds chosen for the age-based options based on solid research?
  • Parent. Does the state trustee and its partners put education savers first?
  • Price. How are the total fees relative to the competition?

State-specific tax benefits. According to Morningstar, 42% of Americans live in states with no state income tax or state income tax benefit, and 12% receive state income tax benefits regardless of the plan they select. For the rest, remember to first consider your state-specific tax benefits via the tools from Morningstar, SavingForCollege, or Vanguard. Morningstar estimates that an upfront tax break of at least 5% on your contributions can make it worth investing in your in-state plan even if it is not a top plan (assuming that is required to get the tax benefit).

If you don’t have anything compelling available, anyone can open a 529 plan from any state. I would pick from the ones listed above. Also, if you have money in an in-state plan now but your situation changes, you can roll over your funds into another 529 from any state. (Watch out for tax-benefit recapture if you got a tax break initially.)

My picks. Overall, the plans are getting better and most Gold/Silver picks are solid. If your state doesn’t offer a significant tax break, I have recommended these two plans to my friends and family:

  • Nevada 529 Plan has low costs, solid automated glide paths, a variety of Vanguard investment options, and long-term commitment to consistently lowering costs as their assets grow. (It is not the rock-bottom cheapest, but this is often because other plans don’t offer much international exposure, which usually costs more.) This is only plan that Vanguard puts their name on, and you can manage it within your Vanguard.com account. This is the keep-it-simple option.
  • Utah 529 plan has low costs, investments from Vanguard and DFA, and has highly-customizable glide paths. Over the last few years, the Utah plan has also shown a consistent effort towards passing on future cost savings to clients. They lowered their fees again in 2020. This is the option for folks that enjoy DIY asset allocation (or simply don’t like all the tinkering done within some all-in-one funds). Since I like to DIY, the vast majority of my family’s college savings is in this plan.

Most 529 plans get better over time, but not always. I agree with M* that a consistent history of consumer-first practices is important, and I’ve experienced it with Nevada and Utah. It feels good to see my current plan just keep getting a little better every year.

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Top 10 College Rankings by Return on Investment (ROI)

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When I was applying to college, my parents went to the drugstore, bought a copy of US News & World Report magazine, and said that I could only apply to a school ranked in the Top 5 for my major (Engineering). That was the only out-of-state or private school that they would consider contributing any of their hard-earned money toward. That was their idea of “value” and “return on investment”.

These days, I am much more skeptical of college rankings. I feel that they are often reverse-engineered. If someone comes up with an intelligent algorithm, runs it, and the names of Harvard, Yale, MIT, and Stanford are not at the very top, what do you think happens? US News & World Report would dump it in the trash, in my opinion. Rankings are tweaked until the “name brand” schools end up on top.

That’s why it always grabs my interest when one of these rankings does NOT have a usual suspect on top. A Georgetown University study took some new federal data and ranked 4,500 colleges and universities by their return on investment. They took into account the actual cost of attendance, future earnings, and potential investment returns.

What school came out #1? Albany College of Pharmacy and Health Sciences. You can easily search for any specific school using their tool.

This WaPo article further discusses the results. Here are the top 10 schools based on ROI:

  1. Albany College of Pharmacy and Health Sciences
  2. St. Louis College of Pharmacy
  3. Massachusetts College of Pharmacy and Health Sciences
  4. Massachusetts Institute of Technology
  5. Stanford University
  6. Maine Maritime Academy
  7. Babson College
  8. Harvard University
  9. Georgetown University
  10. United States Merchant Marine Academy

Here’s some more food for thought. For the Albany College of Pharmacy and Health Sciences, the 25th-75th percentile range of SAT scores is 1040-1240 and the acceptance rate is 69%. The average annual cost for a family that earns less than $30k a year is $21,108, while a family earning $110k+ pays $32,700. The median income of former students (who received federal financial aid and were thus in the data) 10 years after entering school is $124,770. Obviously, this is affected by the fact that most students are studying a health science, but it is significantly more accessible to those who didn’t get a perfect SAT score, excel in certain sports, or have alumni connections.

For Harvard University, the 25th-75th percentile range of SAT scores is 1430-1600 and the acceptance rate is 5%. The average annual cost for a family that earns less than $30k a year is zero, while a family earning $110k+ pays $42,123 per year. The median income of former students (who received federal financial aid and were thus in the data) 10 years after entering school is $89,700.

I agree that college isn’t all about your future income, but given the huge impact of student loan debt, it should be one of the factors considered. The outliers noted are the schools focused on pharmacy/health-related fields and maritime academies. If my child had a serious interest in a medical profession and couldn’t get into an elite university, I would certainly take this information into consideration. I hadn’t even heard of these schools before now. Perhaps there are other pockets of “value” a bit further down in the rankings.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

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Morningstar Top 529 College Savings Plan Rankings 2019

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Investment research firm Morningstar has released their annual 529 College Savings Plans analyst ratings for 2019. While the full ratings and plan analysis for every individual plan are restricted to paid premium members, the vast majority are mediocre and can be ignored. You choices are pretty much (1) your in-state plan for the tax benefits or (2) the best overall plan if you don’t have good in-state perks.

Here are the Gold-rated plans for 2019 (no particular order). Morningstar uses a Gold, Silver, or Bronze rating scale for the top plans and Neutral or Negative for the rest.

The top 3 were Gold last year as well. California Scholarshare is a new addition, upgraded from Silver. The Vanguard 529 Plan from Nevada was removed, downgraded to Silver. The reason stated was because their expenses were low, but not as low as the rest of the Gold-rated plans above.

Here are the consistently top-rated plans from 2011-2019. This means they were rated either Gold or Silver (or equivalent) for every year the rankings were done from 2011 through 2018. These were also the same as last year. No particular order.

  • T. Rowe Price College Savings Plan, Alaska
  • Maryland College Investment Plan
  • Vanguard 529 College Savings Plan, Nevada
  • CollegeAdvantage 529 Savings Plan, Ohio
  • CollegeAmerica Plan, Virginia (Advisor-sold)
  • My529, formerly the Utah Educational Savings Plan

The “Five P” criteria.

  • People. Who’s behind the plans? Who are the investment consultants picking the underlying investments? Who are the mutual fund managers?
  • Process. Are the asset-allocation glide paths and funds chosen for the age-based options based on solid research? Whether active or passive, how is it implemented?
  • Parent. How is the quality of the program manager (often an asset-management company or board of trustees which has a main role in the investment choices and pricing)? Also refers to state officials and their policies.
  • Performance. Has the plan delivered strong risk-adjusted performance, both during the recent volatility and in the long-term?
  • Price. Includes factors like asset-weighted expense ratios and in-state tax benefits.

State-specific tax benefits. Remember to first consider your state-specific tax benefits via the tools from Morningstar, SavingForCollege, or Vanguard. Morningstar estimates that an upfront tax break of at least 5% can make it worth investing in your in-state plan even if it is not a top plan (assuming that is required to get the tax benefit).

If you don’t have anything compelling available, anyone can open a 529 plan from any state. I would pick from the ones listed above. Also, if you have money in an in-state plan now but your situation changes, you can roll over your funds into another 529 from any state. (Watch out for tax-benefit recapture if you got a tax break initially.)

My picks. Overall, the plans are getting better and most Gold/Silver picks are solid. If your state doesn’t offer a significant tax break, I have recommended these two plans to my friends and family:

  • Nevada 529 Plan has low costs, solid automated glide paths, a variety of Vanguard investment options, and long-term commitment to consistently lowering costs as their assets grow. (It is not the rock-bottom cheapest, but this is often because other plans don’t offer much international exposure, which usually costs more.) This is only plan that Vanguard puts their name on, and you can manage it within your Vanguard.com account. This is the keep-it-simple option.
  • Utah 529 plan has low costs, investments from Vanguard and DFA, and has highly-customizable glide paths. Over the last few years, the Utah plan has also shown a consistent effort towards passing on future cost savings to clients. This is the option for folks that enjoy DIY asset allocation. Since I like to DIY, the vast majority of my family’s college savings is in this plan.

I feel that a consistent history of consumer-first practices is important. Sure, you can move your funds if needed, but wouldn’t you rather watch your current plan just keep getting better every year?

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


The Hidden Economics of College Admissions

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NY Times Magazine has an interesting longread What College Admissions Offices Really Want by Paul Tough, adapted from his new book The Years That Matter Most: How College Makes or Breaks Us. Angel Pérez and Trinity College allowed an inside look at the admissions process of a small liberal arts college. The entire thing is definitely worth a read, but here are my notes and highlights.

  • Both public and private universities stress about making their budget numbers balance. Tuition, endowments, and government funds must cover their expenses. Many colleges lose money year, and some of these are eventually forced to shut down.

    Tuition revenue, which along with room and board provides about two-thirds of Trinity College’s operating budget, had been falling for several years, and Trinity was running a steep deficit, losing $8 million a year.

  • This financial stress makes it hard to be truly need-blind and offer every student the aid package they need to afford college.

    Enrollment managers know there is no shortage of deserving low-income students applying to good colleges. They know this because they regularly reject them — not because they don’t want to admit these students, but because they can’t afford to.

  • The simplest way to balance their budget is to admit more students who can afford to pay full tuition, even if they aren’t the best applicants.
  • “We were taking some students who probably should not have been admitted, but we were taking them because they could pay”

    There is a popular and persistent image of college admissions in which diversity-obsessed universities are using affirmative action to deny spaces to academically talented affluent students while admitting low-income students with lower ability in their place. Boeckenstedt says the opposite is closer to the truth. If you’re an enrollment manager, he explains, the easiest category of students for you to admit are below-average students from high-income families.

  • High-income household have advantages in a few different ways. There are always a certain number of spaces set aside specifically for alumni, big donors, and those who excel at collegiate sports. These all tend to benefit those of high income.

    Most of Trinity’s athletes play sports that are popular in prep schools and rare in low-income public schools: field hockey, lacrosse, rowing and, especially, squash. The result is that at Trinity, as at many other Division III schools in the Northeast, the recruited athletes are actually more likely to be white and wealthy than the rest of the freshman class.

  • SAT and ACT scores also tend to correlate strongly with income.
  • Boeckenstedt’s chart shows an almost perfect correlation between institutional selectivity and students’ average family income, a steady, unwavering diagonal line slicing through the graph. With only a few exceptions, every American college follows the same pattern.

  • Even though many of the most elite colleges now tout their “free tuition” for low-income students, the overall numbers haven’t changed much.

    The most selective colleges in America were the least socioeconomically diverse. […] At “Ivy plus” colleges (Chetty’s term for the Ivy League plus Stanford, M.I.T., Duke and the University of Chicago), more than two-thirds of undergraduates, on average, came from families in the top income quintile, and fewer than 4 percent of students grew up in the bottom income quintile.

  • Hardly anyone pays the full “sticker” price at private universities. In fact, on average, students pay half the sticker price.

    At private, nonprofit four-year colleges — a category that includes most of the nation’s highly selective institutions — 89 percent of students receive some form of financial aid, meaning that almost no one is paying full price.

    In 2018 the average tuition-discount rate for freshmen at private, nonprofit universities hit 50 percent for the first time, meaning that colleges were charging students, on average, less than half of their posted tuition rates.

  • Colleges use variable pricing based on how badly they want you in their class and how much they think you’ll pay. If you get an admission to a private college with zero “merit” aid, sorry but you’re probably on their low end and they want your money to help pay for lower-income students that they want more. “We’ll take you, but only if you pay full price.”

    “Admissions for us is not a matter of turning down students we’d like to admit. It’s a matter of admitting students we’d like to turn down.”

    “Everybody wants to have more selectivity and better academic quality and more socioeconomic diversity, and they want more revenue every single year,” he explained. “Part of my job since arriving at Trinity College has been educating this community about the fact that you can’t have it all at the same time. You’ve got to pick which goals you’re going to pursue.”

  • Capitalism works from the student perspective as well. Parents and students have come to expect such tuition discounts if they are a stronger applicant and have multiple aid offers.

    its wealthy admits were demanding steeper and steeper tuition discounts in order to attend, and overall tuition revenue was falling as a result.

  • Everyone seems to place too much power in “America’s Best Colleges” rankings by U.S. News & World Report.

    The U.S. News list is openly loathed by people who work in admissions; in a 2011 poll, the most recent available, only 3 percent of admissions officials nationwide said they thought the “America’s Best Colleges” list accurately reflected the actual best colleges in America, and 87 percent said the list caused universities to take steps that were “counterproductive” to their educational mission in order to improve their ranking.

Perhaps I am too jaded, but I don’t really mind a private college allowing some extra “full price” students in order to offer more low-income students a full scholarship. I found it more interesting that data analytics now optimize exactly how much tuition they can get out of you. Can you really call it “financial aid” when you have a $70k sticker price and “only” charge someone $60k a year? I always hated calling something a “financial aid package” when it was mostly loans.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Can You Teach Your Kid To Be Rich?

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There is an ongoing debate about personal finance education in school. It sounds like a good idea, but multiple studies have found that financial literacy classes don’t really improve future behavior. It may be too much to expect an easy fix to such a complex problem.

As a parent, how do you best set up your kids for financial success? In the end, how can you really tell if you made a difference anyway? You can only try your best. My personal philosophy boils down to this famous proverb:

Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime.

Some parents plan on giving their kids a big pile of fish. An inheritance. Real estate. A business to take over and run. That’s out of love, and I am not judging that choice. I might leave them something, but I’m going to tell them to expect nothing. Instead, I hope they will see that I put in a lot of effort to help them develop the tools to go out and “fish”, and that as adults it’s up to them to make money for themselves.

To be clear, this is not the only thing that I am teaching them. Good relationships with family and friends are more important than an early retirement. However, I have observed several specific traits useful in navigating the financial world. As a result, I want to help them:

  • Develop good character traits like self-discipline, gratitude, and perseverance. If they can control their emotions, have empathy for others, and endure hard work, it helps everything else.
  • Obtain quality formal education. If they are going to solve the world’s problems, they need a strong, wide base of knowledge. A solid education and good teachers can really inspire and change a child’s life.
  • Experience entry-level hourly work in the retail, construction, and/or food service industries. They should understand how hard it is to make a living without specialized skills.
  • Create their own business ventures. I plan on helping them start any kind of micro-business that they want. It might be even better as a non-profit, donating the proceeds to the community. Through this, they will learn basic accounting, marketing, and interpersonal skills.
  • Improve interpersonal skills. Across all of their activities, from school projects to extracurriculars (sports/arts/music) to starting their own business, learning how to work with others is key.
  • Feel encouraged to take calculated risks. There are many ways to take asymmetrical risks where the upside is huge and the downside is small. This especially true when you are young and without dependents. I want them to take such risks.

None of the factors above require a ton of money, although private schools can be quite expensive. The best option may be maximizing the public school options available. My parents rented a small apartment in a good school district, as they couldn’t afford buying an expensive house with high property taxes. I only realized this recently when I visited our old duplex and found a house down the street listed for nearly $2,000,000 (median price in this city is $370,000).

I do plan to contribute to a 529 plan and minimize student loan debt. Maybe college tuition will be more sane in 15 years, but I think this is the best use of cash right now – keeping them from having to fight the power of compound interest in reverse. (I also classify paying for education as “teaching them to fish”.) I want to show them that we value education and also strive to avoid debt whenever possible.

Bottom line. How does anyone get rich? Most people who got rich quickly had equity in a business venture. This takes a combination of specialized skill, interpersonal skills, risk-taking, and luck. Most people who got rich over decades got there with a steady career, work ethic, patience, self-discipline when it comes to spending, and investing the difference repeatedly. I’d be happy with my kids taking either path, and tried to think up a list of ways to help promote these traits.

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned.

MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.


Morningstar Top 529 College Savings Plan Rankings 2018

My Money Blog has partnered with CardRatings and may receive a commission from card issuers. Some or all of the card offers that appear on this site are from advertisers and may impact how and where card products appear on the site. MyMoneyBlog.com does not include all card companies or all available card offers. All opinions expressed are the author’s alone.

Investment research firm Morningstar has released their annual 529 College Savings Plans analyst ratings for 2018. While the full research paper appears restricted to paid premium members, this is still useful as while there are currently over 60 different 529 plan options nationwide, the majority are mediocre and there is really no reason to put your hard-earned money into them since anyone can invest in any state’s 529 plan.

Here are the Gold-rated plans for 2018 (no particular order). Morningstar uses a Gold, Silver, or Bronze rating scale for the top plans and Neutral or Negative for the rest.

All 4 of these plans were Gold last year as well. There were no new additions or subtractions.

Here are the consistently top-rated plans from 2011-2018. This means they were rated either Gold or Silver (or equivalent) for every year the rankings were done from 2011 through 2018. These were also the same as last year. No particular order.

  • T. Rowe Price College Savings Plan, Alaska
  • Maryland College Investment Plan
  • Vanguard 529 College Savings Plan, Nevada
  • CollegeAdvantage 529 Savings Plan, Ohio
  • CollegeAmerica Plan, Virginia (Advisor-sold)
  • My529, formerly the Utah Educational Savings Plan

The “Five P” criteria.

  • People. Who’s behind the plans? Who are the investment consultants picking the underlying investments? Who are the mutual fund managers?
  • Process. Are the asset-allocation glide paths and funds chosen for the age-based options based on solid research? Whether active or passive, how is it implemented?
  • Parent. How is the quality of the program manager (often an asset-management company or board of trustees which has a main role in the investment choices and pricing)? Also refers to state officials and their policies.
  • Performance. Has the plan delivered strong risk-adjusted performance, both during the recent volatility and in the long-term?
  • Price. Includes factors like asset-weighted expense ratios and in-state tax benefits.

State-specific tax benefits. Remember to first consider your state-specific tax benefits via the tools from Morningstar, SavingForCollege, or Vanguard. Morningstar estimates that an upfront tax break of at least 5% can make it worth investing in your in-state plan even if it is not a top plan (assuming that is required to get the tax benefit).

If you don’t have anything compelling available, anyone can open a 529 plan from any state. I would pick from the ones listed above. Also, if you have money in an in-state plan now but your situation changes, you can roll over your funds into another 529 from any state. (Watch out for tax-benefit recapture if you got a tax break initially.)

My picks. Overall, the plans are getting better and most Gold/Silver picks are solid. If your state doesn’t offer a significant tax break, I would recommend these two plans to my friends and family:

  • Nevada 529 Plan has low costs, solid automated glide paths, a variety of Vanguard investment options, and long-term commitment to consistently lowering costs as their assets grow. (It is not the rock-bottom cheapest, but this is often because other plans don’t offer much international exposure, which usually costs more.) This is only plan that Vanguard puts their name on, and you can manage it within your Vanguard.com account. This is the keep-it-simple option.
  • Utah 529 plan has low costs, investments from Vanguard and DFA, and has highly-customizable glide paths. Over the last few years, the Utah plan has also shown a history of passing on future cost savings to clients. This is the option for folks that enjoy DIY asset allocation. Since I like to DIY, I have the majority of my family’s college savings in this plan.

Morningstar offers their own additional insight into the Gold-rated plans. I feel that a consistent history of consumer-first practices is most important. Sure, you can move your funds if needed, but wouldn’t you rather watch your current plan just keep getting better every year?

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How Much Do You Need To Save For College? Vanguard 529 Calculator

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Thinking about 529 plans and like playing around with interactive calculators? This Vanguard tool helps you visualize how much you’ll need to save for college and how changing up a specific factor would affect your results. It adjusts for age, contributions, investment returns, tuition inflation, and even looks up the current cost of your favorite university. A formal report is spit out with lots of charts, just like a financial advisor might create for you. Here’s a sample screenshot:

Tuition inflation is something that I think is hard to predict. However, I couldn’t think of anything better than accepting the default assumptions that investment return will only barely outpace tuition inflation.

If you’d rather have a quick, simple scenario, check out this Vanguard article on the power of automatic savings. If you put away $130 a month automatically every month for 18 years, at a 6% return you’d end up with $50,000. Putting away $50 a month reliably would get you to $20,000.

Nearly half of your final amount would be due to investment growth, which thanks to the 529 plan can be tax-free when used towards qualified educational expenses.

I’m still in the camp that retirement should be prioritized over college savings, but I definitely understand the parental instinct to provide the best educational opportunity possible. I’m still pondering the idea of targeting funding college with 1/3rd savings, 1/3rd spending from current income, and 1/3rd grants/scholarships/loans.

Finally, here is another set of handy Vanguard tools, a 529 Plan Interactive Comparison Map and Tax Deduction Calculator.

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Completed Sample IRS Form 709 Gift Tax Return for 529 Superfunding / Front-Loading

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529Updated. Let’s say you are fortunate enough to be able to make a large contribution to a 529 college savings plan, perhaps for your children or grandchildren. You read from multiple sources that you are able to contribute up to $75,000 at once for a single person or up to $150,000 as a married couple (2018), all without triggering any gift taxes or affecting your lifetime gift tax exemptions. (From 2013-2017, these numbers were $70k/$140k). What you are doing is “superfunding” or “front-loading” with 5 years of contributions, with no further contributions the next four years.

Those are pretty big numbers, but any contribution above $15,000 will require you to file a gift tax return because that is the annual gift tax exclusion limit for 2018. ($14,000 for 2013-2017.) You’ll need to fill out IRS Form 709 [pdf], “United States Gift (and Generation-Skipping Transfer) Tax Return”. The instructions are quite long and confusing. You ask your accountant and they suggest talking to your estate lawyer. You may wish to avoid paying the $400 an hour or whatever it will cost as the form should be pretty straightforward.

So how do you fill out form 709 for a large but simple 529 contribution? Here are the resources that I found most helpful:

(Note that I have found what I consider minor errors and/or inconsistencies in some of the sample 709 forms above.)

Here’s a redacted version of my completed Form 709. Let me be clear that I am not a tax professional or tax expert. I am some random dude on the internet that did his own research to the best of his abilities and filled out the form accordingly. This is what my form looks like. It could be wrong. You’ll need to make changes to conform to your specific situation. Feel free to offer a correction, but please support your statement.

For my version, I am assuming that you and your spouse contributed the maximum $140,000 together. (I didn’t actually contribute that much.) The 2014 form is shown below, but I just did this for another kid using the 2017 form and I couldn’t find any differences. Note that you’ll need to file two separate gift tax returns, one for you and one for your spouse. Mail them to the IRS in the same envelope, and I like to send them certified mail.

f709_generic1_ediated

f709_generic2

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Here is my Form 709, Schedule A, Line B Attachment

Form 709, Schedule A, Line B Attachment

– Donor made a gift to a Qualified State Tuition Program (a 529 plan).

– Total amount contributed $140,000 in 2014.

– Donor elects pursuant to Section 529(c)(2)(b) of the IRS Code of 1982, as amended to treat the gift as having been made equally over a 5-year period.

– The gift was made jointly by the taxpayer and the taxpayer’s spouse on January 1st, 2014 and will be split equally in half.

– Election made for $140,000 over 5 years is equal to $28,000 total per year, or $14,000 per person per year.

– The contribution is for

Juniper Doe
Daughter
1234 Main St
New York, NY 10001

When to file Form 709. When taking the 5-year election, you must fill out the gift tax return (Form 709) by April 15th of the year following the year in which in the contribution was made. So if you make the contribution in 2018, you must file Form 709 by April 15th, 2019. If you make the upfront contribution in the first year and then make no future contribution in the next four years, you do not have to file a gift tax return after the one you did for the first year.

What if you’re late? Well, you should file the Form 709 as soon as possible. If you did not exceed the limits then technically there is no gift tax due, and there is no penalty that I could find for late filing when there is no taxes due. Still, I would file ASAP.

The tax information set forth in this article is general in nature and does not constitute tax advice. The information cannot be used for the purposes of avoiding penalties and taxes. Consult with your tax advisor regarding how aspects of a 529 plan relate to your own specific circumstances.

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Open University: UK-Based, Regionally US-Accredited Online Bachelor’s Degrees

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ou200If you are interested in online college education, definitely read How Open University Works: An Insider’s Perspective by Manoel Cortes Mendez. The Open University (OU) is a public, nonprofit UK university that was founded in 1969 with a focus on distance-learning. I was not familiar with the OU at all before reading this.

In this article, I retrace my steps at the OU, from enrollment to graduation. The goal is twofold: first, to give you a sense of what it’s like to study with the OU; second, to highlight particular aspects of the OU experience that aren’t readily apparent from the outside, but that every prospective student ought to know.

The author earned a Bachelor’s degree in Computer Science from the OU, spending a total of $18,000. He is now halfway through the Online Masters in Computer Science from Georgia Tech.

Unlike most Open University (OU) students, who are usually in their mid-thirties, I joined the OU in my early twenties. I chose the OU over a brick university because I had started working full time after high school, and I wanted to continue working during my university studies. Furthermore, I lived in Belgium, but I envisioned my career in the US. So I wanted to study in English and my degree to be recognized internationally. As it happens, the OU is one of a handful of UK universities to be fully accredited in the US. That settled my choice.

Here’s how that was possible:

Despite its unconventional mode of delivery, the OU is on paper a university like the others. More precisely, it’s a recognized body in the UK, which is british legalese for fully accredited. And it’s one of the few UK universities to also be regionally accredited in the US. So if after your OU degree, you want to pursue further studies in a brick university, you can. And this includes prestigious universities. For instance, one of my OU classmates went on to study a master’s degree in computer science at Oxford University.

In other words, a degree from Open University has a certain level of respect and reputation for high-quality education (at least in the UK) that is not present at many for-profit US universities. Would it be possible for there to be an equivalent institution in the US? How many US residents have gotten undergraduate degrees at Open University? I bet they would get more foreign applicants if they renamed it to something that sounds traditional like “London-Bletchley University”.

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Georgia Tech Online Master’s Degree Update: Computer Science $7,000, Data Analytics $10,000

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georgiatech

Maybe I’m foolish, but I remain hopeful about the potential of software leading to more affordable, accessible education. In 2014, Georgia Tech launched an Online Master of Science in Computer Science (OMSCS) with the goal of offering an accredited, top-tier education at a surprising price of $7,000. The program has been regularly ranked in the Top 10 by U.S. News & World Report, and the traditional residential program costs $28,000 two years of tuition (out-of-state, not including housing).

OMSCS offers the same lectures from the same professors, the same homework assignments, and the same exams. A few other top universities have online versions of their masters programs, but they charge the same tuition as in-person ($40,000+). The diploma is exactly the same as those of on-campus graduates, with no special “online” designation.

Would there be enough interest from qualified candidates? Would it remain financially viable? Would the online program cannibalize from the traditional on-campus program? Would employers discriminate if they found out that this was an online degree? Would the careers prospects be different due to the lack of in-person networking opportunities?

EducationNext recently published an article An Elite Grad-School Degree Goes Online addresses some of these questions. InsiderEd has a an article Online, Cheap — and Elite that summarizes the findings.

Analyzing the first six cohorts of the online program, from spring 2014 to fall 2016, the report found that the typical applicant to the online program was a 34-year-old midcareer American, while the typical applicant to the in-person degree was a 24-year-old recent graduate from India.

Of the 18,000 students who applied to the in-person and online degrees, less than 0.2 percent applied to both, the report said.

Students admitted to the online program typically had slightly lower academic credentials than those admitted to the in-person program, but they performed slightly better in their identical and blind-marked final assessments — a finding the study hailed as “the first rigorous evidence that we know of showing that an online degree program can increase educational attainment.”

Overall, the program has been a success in terms of expanding access to high-quality computer science education. Total enrollment is now over 6,000 students. The questions about career effects will be addressed in future studies.

In 2017, Georgia Tech announced a new Online Masters Degree in Analytics for under $10,000. This is also a nationally-ranked Top 10 program where the traditional in-person tuition ranges from $36,000 for in-state students to $49,000 for out of state. The data analytics program is an interdisciplinary collaboration between the College of Engineering, College of Computing and the Scheller College of Business.

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