Changing from Old to New Version (529 Planning)
Hi guys. About seven months ago, you provided guidance on how to model 529 current balances, savings and expenditures (for College in future years) before the recent upgrade that included the 529 Page in ESPlanner.
I need some assistance in how to change my data entry. Here's what I think I should do, but could you verify this is correct?
Step 1. No longer include 529 current balances under Assets and Savings.
Step 2. Remove all special savings and expenditures from the Special area of ESPlanner.
Step 3. Complete the 529 page completely, which measn I will enter both my current balances and the expected expenditures to pay for school in the future.
I believe the program will now help me determine what my overall consumption and savings will be, including savings to 529 plans.
Do I understand how the new 529 Plan works correctly? If not, please correct my logic.
Thanks,
Ed
RSS
Nope, that should just about do it.
Of course, you should do all the new stuff in a copy of your profile (Save As).
Best,
Dick Munroe
One last question on the changes made to accommodate 529 Plans.
I still have included an estimate of our children's complete College costs under Special Expenditures, even though I also included the current balance of the 529 Plan assets as well as the estimated years when the 529 payments will be withdrawn.
I am modeling this correctly, or have I double counted? For instance, years from now, I expect to withdraw say $20K per year for four years from the 529 Plan to fund college costs. I have also included $30K per year during those same years as my estimate of what total college will cost.
Am I on track here, or should I only be showing $10K ($30K - 20K) as the special expenditure?
You should remove those amounts from the Special Expenditures. Otherwise, you'll double count. This is because when you enter amounts needed in the 529 plan, the gradual accumulation of principal and interest accumulate in the Special Expenditures column (along with any other special expenditures). You can see it broken down in the Detail sheet in the 529 tab.
Be careful when you enter the amounts in the 529 area that you pay special attention on each entry to both the year you want to withdraw and the year you want it funded by. You must check these in each of the four years you are entering.
The 529 detail sheet will show your saving plan--revealing interest earned and the way your running balance zeros out after the four years.
Dan
I am having trouble understanding the output I get from a lump sum contribution (5 year election) to a 529 Plan. Under this scenario, 529 Saving and 529 Income are equal. All saving was done in lump sum up front.
Why would the 529 Income be less than the inputted rate of return? Are these real returns? Why would the Qualified Withdrawals shown be less than what was specified in the Inputs and much less than what would be expected accounting for inflation? I inputted them at nominal numbers as of 2009.
Dick M.?
Mark
I'm out of the country at the moment but I'll see what I can figure out. IIRC, there is an initial balance that you can specify and I'm assuming that you've put that in properly. The way the 529 code works is driven off of your expenditure requirements. Given an existing balance and a desire to make an expenditure in 2009, the code should calculate any additional funding necessary to get to that level of expenditure in 2009. Basically we're doing backward mortgage calculations and forward interest calculations to figure out how much money you have to accumulate by what date (the fund by date) for each expenditure then adding it all up.
If this isn't what's happening then there is a problem we didn't see when we tested all this and you'll need to open a support ticket and upload your database along with a detailed explanation of how to recreate the problem.
So if I had 10K in my 529 currently, I would enter that in the initial balance. If I then wanted to make qualified withdrawals of 35k in each of 2019, 2020, 2021 and 2022 and I wanted all this funded by 2018 the 529 report would tell you how much you would have to contribute each year to get to this funding level. Because of interest, your contributions would be less than you would otherwise make doing a straight line calculation and the balance in the 529 would be 0 at the end of 2022.
Best,
Dick Munroe
Hi Dick-
I inputted $136K in the 529 initial amount and stated all amounts funded by 2010. No further contributions. I then inputted a total of $25K in current expenditures for 4 years beginning 2019 for my 8 year old daughter and the same beginning in 2021 for my 6 year old daughter. 529 Income equals savings but the numbers look The Qualified Withdrawals come out at 24,279 per year per child beginning in 2019. Unqualified Withdrawals are 52,607 in 2024. Something is screwy.
I'd be happy to send you the database.
Yeah, that doesn't look right and the difference is suspiciously close to 3% which may be an "off by one" problem of some kind in the nominal/real interest calculations. Open a support ticket, upload your database and let us know which family/profile to use to recreate the problem and I'll take a look.
FWIW, the 529 closes out your account in the year of the last withdrawal by converting any un-consumed balance into an unqualified withdrawal.
Best,
Dick Munroe
I'm gong to put some notes in the support ticket for you, but I'll comment here as well. I note that you put 23K in the special expenditures and you say here 25K for each of six years in the 529 plan. There's a little discrepancy there if you are trying to compare how they are handled.
I also note that the fund may have been left to the default 6% nominal earnings. This rate overfunds the 529 plan because of the 136K that you start with. This causes a required non-qualified withdraw in the last year of the second child's college year.
If you change that 6% down to 3%, this will not happen.
Dan