VA 529 Plan: Yes or No? (loans, transfer, option to buy)

[vauser]

My son is a 4th grader now and I am very inclined to enrolling in a College 529 savings plan. I realize there are varying opinions but if I am not so worried about the money and how it appreciates but am primarily interested in securing the College tuition, isn't the 529 a must and a very obvious investment to make?

[stuntmonkey]

We have them for our children, and we have money directly deposited into them every month. The tax benefits are outstanding, and the money can be applied to any school.

We debated between doing the prepaid plan and the 529. We didn't like that the prepaid plan would basically force our kids to go to school in state, and we also felt the contribution amount (about $380 a month starting at birth through age 18) was high because it only covers tuition, not room and board. We feel we can do better in the end with the 529 if we put in the same amount of money every month.

[vauser]

If they go to school in state, tuition is all paid for. If they don't, the money is still available to be used elsewhere in its entirety. Why does it then "force" one to go to school in state?

[Denton56]

Yes! It makes good financial sense to do it.

[Workin_Hard]

It's a good deal and as stated, the tax breaks make it even better. Within two months of my daughter being born, I used the prepaid option to buy 4 years of tuition using the lump sum payment of $35K. Her collage is paid for and I sleep better knowing that. If she goes out of state in 2024, VA will pay the equivalent of in-state tuition to any other school, but of course I'm hoping she either chooses to go in-state or gets scholarships.

I just got the statement the other day, and the redemption value, should I choose to use it, is now worth $39K.

[choff5]

We had the prepaid for our son and while it would have been used if he had gone out of state (he was looking at private liberal arts schools) he did end up going to a state public. All we paid for the four years was his housing and it was wonderful, well worth the money each month we paid into it. I should also add we didn't worry about state tuition increases, or the value of the 529 plans going down as so many did in the recent economic crisis. I'm very glad we did it this way.

[LVMYDACH]

We purchased the prepaid VA 529 plan for our daughter who is finishing her senior year at George Mason University. It was the best decision that we have ever made. All 4 years of her tuition have been paid. We definitely came out ahead because over the years tuition costs in VA have risen so much since we initially purchased the plan. With the ups and downs of the stock market I personally would be hesitant to purchase anything but the prepaid plan!

[FishSauce]

We contribute to the 529 VEST since each of the kids were born, but went ahead last year and sign up for the prepaid VPEP for all 3 kids. The VPEP will cover the tuition and the VEST will cover room/board/books/fees.

[stuntmonkey]

Originally Posted by vauser

If they go to school in state, tuition is all paid for. If they don't, the money is still available to be used elsewhere in its entirety. Why does it then "force" one to go to school in state?

The 529 does not "force" your child to go in state. That's why we chose it.

The prepaid plan also technially does not "force" you to go in state, but if your child chooses to go out of state, you will not make any significant interest on your money. You will only get back what you put it with a very marginal rate of interest. I believe that our money will earn FAR more interest in the 529 plan over 18 years than what we would get back if our children go out of state. That's why many people feel like in state schools are the only options with the prepaid plan.

[michgc]

You should definitely be putting money away for your child's college tuition as early as possible if you intend to pay for all or part of his/her schooling. However, a very important point to consider is to not put money away for college at the expense of YOUR retirement. Is your retirement funded to the maximum? Do you put away the maximum to your 401(k) or similar? Do you contribute the maximum to your yearly IRA? As the saying in the financial circles go, "you can get financial aid, scholarships, and loans for college, but you can't get the same for your retirement." So make sure your retirement contributions are good before you start college savings.

If you are good with retirement, then a 529 plan is a good way to accomplish college savings because of the tax benefits. Personally, I like putting the first $2,000 per year into a Coverdell Edcuation Savings Account (ESA) because I control where the money is invested. And then anything above and beyond the $2,000 that I invest per year goes into a 529 plan. If you decide to invest in a 529 plan, remember, that you don't have to contribute to the Virginia 529 plan; you can use any state's plan, but you won't get state tax benefits if you contribute to another state's plan. However, if another state's plan is far superior, it could still be worth it. I think Virginia's is generally well-regarded, but there are others that are supposed to very good - Utah's, for example.

A prepaid college fund can work out well if college tuition costs rise faster than they anticipate. People who locked in many years ago did well because tution rose so much in recent years. On the other hand, if they don't rise as much as they assume, then it could be a less than stellar investment for you. The prepaid plan also protects you from big stock market losses. But on the other hand, it doesn't allow you to take advantage of big gains in the market either. I would look into the details about transferring it to other states and how it works as far as tution amounts. Is it dollar for dollar or does it pay for the other state's in-state tuiton regardless of their rates versus Virginia's in-state rates. How likely are you to move or how likely is it that your child would go out of state (hard to guess, I know). These are all things you want to take into consideration.

Here is a good guide to 529 Plans for more information: Savingforcollege.com - The internet guide to funding college and Section 529 college savings plans. And I also like reading CNN/Money for more information.