IL 529 vs. vanguard 529 vs other
I have 4 children, ages 10, 7, 7, 7. Both my husband and I are in our late 40's and we need to set up college funds for our children. We currently have a savings account for each, which only has approx $1000 or so for each, the oldest with a bit more. My parents just gave me $12,000 to put towards their college, and I'm so confused on the right move to make. I have no idea how to figure out the tax break if I go with an in-state IL 529, vs a Vanguard account, which is also one of the places I have an IRA. We will plan to set up a direct deposit to the accounts bi-monthly, but according to the calculators we will be short, but plan to do the best we can. Honestly, I hate that one of the IL funds managed so poorly in the past, but do see both have been doing better and even show up fairly high in the ratings. I need to do something with this gift from my parents, but can't seem to pull the trigger... please help me make the best decision for my family.
Terry Says
I hope that in the long run, it won't make much difference which plan you choose. What's important is that you put this money into a plan -- and keep adding to it. It may not be "enough" when it comes time for college, but it will be a help. If I read your post correctly, you have triplets, plus an older child! This can be a daunting task, but every little bit will help. And you are likely to qualify for financial aid when it comes time for college anyway. Two thoughts. First, you get a deduction for $10,000 of contributions to an Illinois 529 plan in any one year. At the current tax rate of 3.75 percent, that means you'd save $375 in taxes. And that is not insignificant. It is truly an incentive to use the Illinois plan. However, it wasn't enough incentive for me. When I opened plans for my twin granddaughters, I used the Vanguard 529 plan! Second, here's another consideration. Are your parents planning to give you such generous gifts every year? If so, they might want to open a plan in THEIR names as custodian. Then the assets in the plan do not have to be reported until they are used. At that point, they weigh more heavily in the aid formula -- counting as assets of the child. However, if you wait until senior year to use these "grandparent" plans, there will be no impact on aid in the subsequent year! (Plans in the parents' names as custodian are counted as parental assets, but weigh far less than student assets in the aid formula.) And, finally, consider the investments you choose INSIDE the plan. It is easy to default to age-based plans, but that means you are aggressively investing in the stock market for young children. I chose a more balanced portfolio last year.
