What’s The Difference Between a 529 and ESA?

[@RamseyEverydayMillionaires]

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[@famousamos1]

Other key differences are ESA you can use it tax-free for Elementary(private school) through college. Also in ESA if you’re concerned about control when your child becomes adult majority age 18-24 depending what state you live in that the child becomes owner and can use it for whatever they want but they will pay penalties and income taxes if they don’t use the ESA for education. Also you can’t change child beneficiary in ESA. 529 you can change beneficiary of the plan and you retain control even when your child is an adult. Investment choices are unlimited in ESA such as stock, bond, CD, mutual fund, ETF, etc vs 529 only choices are mutual fund or ETF depending on what state 529 plan you choose.

[@n23391]

thanks!

[@toohda]

This is incorrect. You can use a 529 for any education whether it’s elementary school or trade school or college

[@famousamos1]

@@toohda yes you are correct I forgot they revised the 529 plan in the Tax Cuts and Jobs Act 2017 to allow up to $10k for elementary expenses. However the limit is small. Most elementary or H.S. private schools cost more than $10k.

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[@NavShay]

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[@j.m0ney133]

529’s are more flexible than ESA’s. Plus you can put more money each year in 529’s.

[@markstone6263]

Big parts he missed about an ESA is it can be self-directed and therefore put in much better investments than a 529, such as individual stocks, crypto, RE etc etc. And also the income limits for contributing are based on AGI, so if you are shielding your income with active investments such as short-term RE rental, oil/gas, or solar you could meet that requirement, or you could have a family member be the one contributing for your kid

[@denko44]

I do options in the ESA and don't even self direct... my options strategy blows any 529 out of the water. I will say the latest 529 changes make it much more attractive due to roth rollover.

[@markstone6263]

@@denko44 yeah but that Roth rollover requires the child to have earned income and it doesn't increase the amount you can put in a Roth per year so I think that makes it not as great honestly

[@denko44]

@markstone6263 i live in a state that doesnt get a 529 tax right off.. so it wasnt very good for me. IF the 529 has money left after collage or kid chooses not to go do collage. It's nice to be able to convert. That kid can either keep more of what they made or they. Can invest more elsewhere. It's not the greatest in the universe but it's better than it was. Example, stack roth ira with 529 rollover & stack 401k at work. Let's say kid was only able to stack either or but now they can work on growing both.. it can help accelerate building their nest eggs.

[@Anthony-zw1qb]

What I like about the target funds is they start off at $10 a share and as they enter high school it is low risk. Everyone I know the last 3 years lost the bulk of their kids 529 due to the market going down and they all had index funds “which I like for 401k but you only have so much time for a 529 to recover if the market has a big spill” idk, just my opinion on it

[@thelogicaldanger]

I disagree about the pre-paid tuition plans, for most people those are the best (because most people aren't going to have the knowledge or time or wherewithal to manage a mutual fund 529.) Pre-paid tuition plans are great, have used them with all my many children (2 who have already collected on them.)

[@harrychufan]

There’s only 9 states that still do them

[@thelogicaldanger]

@@harrychufan Yeah, unfortunately I think while they are a great deal for the parents, they weren't so great a deal for the state.

[@marcenelj]

Lady, you pick the funds like you would for your retirement accounts.. nothing crazy there

[@poolking25]

I dont really understand the prepaid concept. Say tuition costs $10k/ year for public university currently. How much would i need to contribute and when? Why is it worse or better

[@pickletickle1805]

im 18, should i put money into an ESA or 529 for my college expenses?

[@margareto1600]

What if kid will not go to college? Can kid use it for anything else? What if kid dies? Can parents use money for anything else?

[@donaldlee6760]

Yes many choices - become a plumber or dental hygienist at a trade school, transfer account to your other kid(s), transfer to grandkid (might have to wait another 20 years), move to parent (ever dream of being a chef or learn the banjo during retirement?), take out the contributions (but not the growth) penalty and tax free, which probably will be most of the account. Maybe leave what little remains (the growth) to pay for future grandkids private pre-school, elementary, high school, college, or trade school. Private pre-school would be something like an English speaking family sending the little ones to a French immersion school, day care does not count. I can't speak a word of French buy my now high school kids are not only fluent, but they actually speak with a French accent. I wish my own parents would have done for me what my wife and I have done for our kids because I'd likely be in a different place in life.

[@saulgoodman2018]

So why does an ESA exist if you can do a 529?

[@thelogicaldanger]

The only advantage to an ESA, is if you had maxed out the yearly contribution to a 529, but wanted to invest more money in your kid's education. Then you could have an ESA on top of the 529. But if you had to choose between the 2, there is literally no reason why someone would choose a ESA over 529.

[@saulgoodman2018]

@@thelogicaldanger 10k for 10 years, that's almost 100k. That should be more than enough.

[@thelogicaldanger]

@@saulgoodman2018 I would agree, so practically, I see no need for an ESA. That was the only reason I can figure why someone might actually use one.

[@MichaelAnderson-wk1no]

The biggest advantage of the ESA that I'm aware of is that it gives you much more flexibility in investment choices, whereas the 529 is usually limited to select mutual funds you have to pick from. But the $2,000 limit on the ESA is a HUGE disadvantage that I think may outweigh that one advantage.

[@poolking25]

Being able to choose your index funds at a 0.03% expense ratio is a huge advantage for ESA. Whereas some states have outrageous expense ratios close to or above 1%

[@dantran5395]

Did he just say the ESA and 529 are kissing cousins??

[@ClaxtonBay123]

Yes...? It's a pretty common saying

[@elizabethheiland5632]

Im worried about how the 529 is gambled in the stock market. I wonder what my chances are of losing it vs getting a prepaid plan where the moneys gauranteed

[@wishcreative7077]

Gambled? It's not gambled. Might be poorly invested, but not gambled.

[@andresprieto3323]

It's not a gamble, it's an investment. It works very similar to a 401(K) or IRA account. You'll have gains/losses throughout the years, but it will overall grow in the long run.

[@brianmcg321]

Gambled? lol.

[@jjuniper274]

I think and UTMA is a viable option. I'm not entirely sure going to college is the best idea for all people. Maybe you have a kid that wants to start a business, 529 and the like, lock that money up too much.

[@superblump87]

If you have a kid that wants to start a business then college will benefit them.

[@bryanthompson12]

1:17

[@1PurposeMime]

We need to save for college bro

[@kurtheidelbach]

Fake news. I put 2K in a year since my daughter was born. She starts college next year and there is 85K so no you won’t be just “OK” basic expenses for just an undergraduate not even touching a masters is $125K

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