VA 529 Prepay funding question (Lynchburg: 2014, credit, how much)

[knick33]

I lave 3 kids and I've paid off the older child's VA 529 plan. Unfortunately, I can't afford to do a lump sum payment for my younger younger kids but still want to pursue the prepay plan. My question to the forum is such:

Do I just do the monthly plan and put as much down as possible?

or

Should I pull out a line of credit on my house and pay it off with lump sums and therefore owe on house. I'm leaning towards this option because I get to double dip on the tax write offs, but will loose almost all equity on my home.

All comments are welcomed!

[acgood]

how does the tax write-off work for the prepaid? I know for the 529 account you can write off 4000 per year per kid. I cannot imagine the double tax benefits would justify the risk associated with placing that amount of debt ($7000 something per semester for two kids?) on your house.

My personal preference is to steer clear of the prepaid program and invest what you can afford to in the 529 accounts instead.

[LynchburgLover]

Do you want to run the risk of becoming underwater on the house if prices do another nosedive? I'd just put down what I could and stress to the kids -- in-state or a maximum amount for any other school.

[acgood]

Just be sure to read the fine print on just how little money you actually get if they do not attend an in-state public school

[JWnova]

We have put two through in-state schools with the prepaid. JMU and VCU. One more to start in 2018. I'm just guessing but I would imagine most people (like us) investing in the VA prepaid are not able to pay for an out of state school.

It worked well for us. The first two cost $21K and $23k by monthly payments the last one (2014) 16K lump sum purchased around 2000. Not to bad for 4 years of tuition! Absolutely no regrets here.

I would not use the line of credit.

[LynchburgLover]

Originally Posted by JWnova

We have put two through in-state schools with the prepaid. JMU and VCU. One more to start in 2018. I'm just guessing but I would imagine most people (like us) investing in the VA prepaid are not able to pay for an out of state school.

It worked well for us. The first two cost $21K and $23k by monthly payments the last one (2014) 16K lump sum purchased around 2000. Not to bad for 4 years of tuition! Absolutely no regrets here.

I would not use the line of credit.

We want to start one for a soon-to-be-born grandchild in another state. Can you tell me roughly how much you put into it each month? Also, did you start at the child's birth? I don't know yet what the interest rate would be. I'm trying to determine best route.

[michgc]

Originally Posted by JWnova

We have put two through in-state schools with the prepaid. JMU and VCU. One more to start in 2018. I'm just guessing but I would imagine most people (like us) investing in the VA prepaid are not able to pay for an out of state school.

It worked well for us. The first two cost $21K and $23k by monthly payments the last one (2014) 16K lump sum purchased around 2000. Not to bad for 4 years of tuition! Absolutely no regrets here.

I would not use the line of credit.

It sounds like it worked out well for you. As I understand it, though, it was a much better deal back in 2000 than it is today. People who bought back then got a great deal as tuition rates went up so much more than they anticipated. I just looked up the prepaid plan and to get get 4 years of tuition now, you are looking at plunking down a lump sum of about $50K-$60K.

While many people might not be able to pay for an out-of-state school outright, no one really knows what kinds of aid some out-of-state of schools could offer them that could make them as attractive as a college in Virginia. Or with jobs changing, one doesn't know if he may be forced to move out of state for a job, in which case Virginia schools would no longer be in-state.

I am just not totally comfortable locking in my children's choices.

[michgc]

Originally Posted by LynchburgLover

We want to start one for a soon-to-be-born grandchild in another state. Can you tell me roughly how much you put into it each month? Also, did you start at the child's birth? I don't know yet what the interest rate would be. I'm trying to determine best route.

Here's the calculator for the Virginia prepaid:

Virginia529 College Savings Plan | prePAID^sm Calculator | Affordable, Flexible Tax-Advantaged College Savings

It looks like if you put in money every month for the next 18 years for a newborn, you would need $524 to pay for all 4 years (8 semesters) of tuition or $132 to pay for 1 year (2 semesters) of tuition.

[midlifeman]

I don't have a problem with tapping the equity to purchase a prepaid plan. You still get the same write off of $4,000 and yes the tax deduction on interest of the equity line. The 4,000 benefit will cary over year after year until the lump sum amount is reached.

You may as well have your equity working for you instead of sitting there doing nothing. Now you have the benefit of a fixed tuition and a cheap line of credit of around 3% or so. Tuition has been increasing every year between 6-10% so from a pure math perspective it makes sense.

[LynchburgLover]

Thanks for the link!