ESA vs. 529 Plans?

  1. #1
    UKMustangFan's Avatar
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    ESA vs. 529 Plans?

    Looking to open up a college fund/plan for the little guy and have started to research the pros and cons of the ESAs vs. 529 plans...

    Anyone have good or bad experiences with either?

    Recommendations or advice?

    Also, what financial institution should we go through? I know 529's are offered pretty much everywhere, but ESAs are not nearly as widespread.
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  2. #2
    MentschTrachtGottLacht's Avatar
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    I have 529's for my kids, I will send you more info in a text.

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    We did 529’s. Never really considered ESA’s as weren’t yet around back in 1996 when we set the first one up. ESA’s can be used for primary school, not just college, so if you are going the private school vs public school route, an ESA may be worth considering. ESA’s also have more investment options (which could be a good or bad thing). On the minus side, the max contribution amount for ESA’s is lower, only $2000/child/year. That’s a really big problem if there are multiple contributors to the account (think grandparents). That would have been a big problem for us as both sets of grandparents regularly contributed to the accounts.

    We did our 529’s through TIAA-CREF. I have no recollection as to why we chose them...we set the first one up over 20 years ago and my memory is foggy. I can tell you I was happy with performance and they were very easy to use. I’ll be tapping into the third one next year year when my youngest starts college.

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    UKMustangFan's Avatar
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    Quote Originally Posted by rjs4470 View Post
    We did 529’s. Never really considered ESA’s as weren’t yet around back in 1996 when we set the first one up. ESA’s can be used for primary school, not just college, so if you are going the private school vs public school route, an ESA may be worth considering. ESA’s also have more investment options (which could be a good or bad thing). On the minus side, the max contribution amount for ESA’s is lower, only $2000/child/year. That’s a really big problem if there are multiple contributors to the account (think grandparents). That would have been a big problem for us as both sets of grandparents regularly contributed to the accounts.

    We did our 529’s through TIAA-CREF. I have no recollection as to why we chose them...we set the first one up over 20 years ago and my memory is foggy. I can tell you I was happy with performance and they were very easy to use. I’ll be tapping into the third one next year year when my youngest starts college.
    Is it possible to have both for a child? I guess I'm thinking if you do an ESA and it maxes out, just contribute the rest to a 529?

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    Quote Originally Posted by UKMustangFan View Post
    Is it possible to have both for a child? I guess I'm thinking if you do an ESA and it maxes out, just contribute the rest to a 529?
    I don’t see why not, but I’m not a financial advisor, so I can’t answer that with certainty. That would allow you to take advantage of the benefits of both.

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    Randy Parker's Avatar
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    We started an ESA years ago and have kept it. No problems at all, but if you're wanting to invest more than $2k annually, the 529 is the way to go.

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    By the way, starting a 529 when my daughter was 2 (and at birth for my sons) was one of the smartest and best things I’ve ever done financially. I did monthly contributions and in addition put larger chunks of money in whenever I could and had really nice accounts when the time for college came. My oldest son virtually got a free ride so I’m transferring his to my youngest as he’s likely going to end up at Bellarmine. My kids (and us) not needing to take loans to pay for college has taken a big load of potential stress off my plate, even though those monthly contributions hurt a little when they were young and we weren’t very well off.

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    Randy Parker's Avatar
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    Quote Originally Posted by rjs4470 View Post
    By the way, starting a 529 when my daughter was 2 (and at birth for my sons) was one of the smartest and best things I’ve ever done financially. I did monthly contributions and in addition put larger chunks of money in whenever I could and had really nice accounts when the time for college came. My oldest son virtually got a free ride so I’m transferring his to my youngest as he’s likely going to end up at Bellarmine. My kids (and us) not needing to take loans to pay for college has taken a big load of potential stress off my plate, even though those monthly contributions hurt a little when they were young and we weren’t very well off.
    Nicely done.

  9. #9
    Beechwoodfan's Avatar
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    I don't know anything about ESA's, but we sent 3 kids to college on 529's with no problems.

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    Pm me.

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    Randy Parker's Avatar
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    Quote Originally Posted by Beechwoodfan View Post
    I don't know anything about ESA's
    It's basically an Educational Roth IRA. There's a $2,000 annual contribution limit, but the growth is tax free.

  12. #12
    Voice of Reason's Avatar
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    Depending on the personal facts and situation, I also would consider funding a regular Roth IRA.

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    Make sure you research the differences between the two. For example the custodial controls, the ability to transfer the funds to another family member or back to the parent, etc. 529's are a bit more flexible by my understanding.

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    Wife and I are going to be so behind on this when kids come along.

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    Quote Originally Posted by plantmanky View Post
    Wife and I are going to be so behind on this when kids come along.
    Itís not really that hard. Set up automatic investments in an amount you can stomach and add a few $ís to it whenever you can. In reality, the key to affordable college is your child getting good grades and performing well on the ACT/SAT. Iíve got two in college now, and you of course know my youngest who will be heading to college next fall. Iím paying less than $2k a year for my oldest, and my middle kid is going to EKU for next to nothing, simply because they did very well in high school. My youngest is likely going to Bellarmine, and despite the $50k price tag, in reality, itís going to cost less than $5k. The 529ís have paid for extras like food and other living expenses.

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