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« Investment Smackdown: Index Funds Versus Actively Managed Funds | Main | The Last Words on Roth IRAs Versus Traditional IRAs (At Least for Today) »

June 22, 2007


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You missed one thing. Say you are down to option #5. You are going to take a 10% penalty and pay taxes anyway, so why not keep the account open till you retire? You will get to have it grow interest free indefinately, then pay taxes on it and the 10% penalty that you would have to pay anyway.

Unless you have options 1-4, I think this is a great option. This especially applies if the total ammount is mroe than college costs. If the market goes up a lot and the 529 is worth $100k and 4 years of school is $80k, keep the rest till retirement.

Can't you also reserve it for graduate school? That might be an option if the student is considering a career that involves some sort of graduate or professional degree.

I heard on the radio the other day that you can actually use the money saved in your 401K account and use that fund as a college education fund. Any thoughts or comments on this?


This is a problem I hope I will have when my daughter goes to college :-)

Could you keep it in your kid's name, and then transfer it to the grandkid's name (when born)? I've thought about this being a good strategy to pass some money down the generations tax-free, but I haven't yet investigated all the nuances of it.

I fully expect I'll need the $6500 in my 529 for an MBA program. There aren't too many full-ride plus expense scholarships for b-school!

My daughter did receive a full ride scholarship and I have a 529 plan for her. (books are the only expense we pay for) Should I take out the amount from her 529 each year for that years scholarship portion and invest elsewhere for her? I wanted her to be able to use this for a house after college. She might continue with more college after her 4 year scholarship but I don't expect more than 1 year.
I feel the penalty for taking it out because of her scholarship is a bit crazy but that's our government.
Would appreciate your advise on this.

I agree with the government in this instance. The scholarship did not cause the excess investment in the 529, you overinvested it regardless of scholarship. The 10% penalty eliminates the tax loophole. That's not crazy.
Take out the tax free withdrawal portion and gift the maximum amounts to your daughter to put in some liquid accounts (CD's, money market, etc.)

Pam --

I'll post your question as a "Help a Reader" post sometime in October. Stay tuned to the site to see what the readers advise.

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