Here goes nuthin...anyone thought this through on 529s?

[Scorpion Man]

Conventional wisdom = fully fund 529s ASAP (I think).

I did not do it originally because I did not want the limited investment options available through the plans. THe more I thought about it, I realized that I have some passive index exposure...might as well have it in there...
but I was then very torn because putting in the max would mean foregoing 5 years of no direct gifts to the kids where the money was in my control...with compounding this is material.

I was resigned to doing it when I realized there is another wrinkle that I have never seen mentioned.

When you fund a 529, the child is paying for their own education using gifts you have given to them. If you instead give $ to the kids directly and simply pay for their education out of your own pocket, you get the double dip of gifting them the $ and spending your estate down by the educational amount. This is money that will ultimately be taxes at huge rates for me. I am spending all this time trying to get money out of my estate. NET NET of all these effects, I wonder if its just as easy to just keep gifting the $ to the kids, compound ahead of the S&P, pay taxes, and get the estate benefit of "double gifting" in the end.

[jively]

Well thought out. Having lots of money to give to children and lowering your estate are good problems to have.

My problem with fully funding the 529s is that there is no guarantee that the children will go to college, and if they do, they might receive a substantial scholarship. You can change the 529 beneficiary, but eventually may get to a point where you have to pay tax and penalty on the withdrawals.

-Tom