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New ESPlanner -529 plan

Submitted by frederickt.2005... on 19 June 2009 - 12:41pm

Hi

Regarding the newly release Esplanner, will the new 529 plan feature make any impact on my consumption/living standard if I have already input my child's college education under special expenditures?

Let's assume rate of return remains the same in both the previous and new version of Esplanner (non MC).

US tax is not applicable as I am an overseas Esplanner user.

My guess is there should not be an impact -but I wanted to be sure. (I'm glad to see this 529 plan feature though)

Any answers?

Thanks
Fred

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Submitted by Laurence Kotlikoff on 19 June 2009 - 9:57pm.
1

FRED, IT WON'T CHANGE ANYTHING YOU ARE DOING WITH THE PROGRAM UNLESS YOU ENTER 529 INPUTS. BEST, LARRY

Submitted by Dick Munroe on 20 June 2009 - 10:55am.
2

Fred,

Let's assume that you decide to fund a 529.

Depending upon the amount of money you need, the amount of time you have to accumulate it and any borrowing constraints, then it is possible for a 529 to affect your living standard in the short term (although we never saw any cases like this in our testing). In this sense it is just like any other special expenditure.

However, once you've funded it, any qualified draws on the 529 account will, effectively, be invisible to your standard of living as you've already accumulated the necessary capital to fund the expenditures.

If you choose not to fund a 529 fund, then there is no effect at all, which I suppose is obvious but needs to be said for completeness.

The rate of return for the 529 is not affected by turning Monte Carlo on (the 529 rate of return is exogenous and is not affected by portfolio choice).

Best,

Dick Munroe

Submitted by frederickt.2005... on 21 June 2009 - 10:06am.
3

Hi both

Thank you for the replies.
If I understand the 529 function, it tells me how much to set aside each year to fund the education needs-something not specifically present in the earlier version. I will play around more with this.

Cheers
Fred

Submitted by Dick Munroe on 22 June 2009 - 3:34am.
4

Correct the 529 function does tell you how much to save and in what years depending on the constraints you give the particular expenditure. The 529 function is also new with the 01-May-2009 release.

Have fun.

Best,

Dick Munroe

Submitted by frederickt.2005... on 12 July 2009 - 9:28am.
5

Hi there

A follow up on my earlier post as I had a chance to play around with this new 529 plan feature.

Under the consumption report (PDF), I understand that 529 contribution is included under "special expenditures"

What I don't quite understand is why are ANNUAL RETURNS on 529 plan INCLUDED as part of the special expenditures? Shouldn't these returns be considered as savings and not consumption?

Thanks
Fred

Submitted by Dick Munroe on 12 July 2009 - 7:02pm.
6

They should be included as special receipts (at least I thought they were when I/we checked this out) and balanced as special expenditures when you're depositing them. It should all zero out.

This is basically an argument that Larry and I have periodically. He doesn't feel that income from the 529 should show up on the cash flow, I do. I went ahead and did it that way but can take it out easily enough if he (or the customer base) objects strongly enough.

Best,

Dick Munroe

Submitted by frederickt.2005... on 12 July 2009 - 11:13pm.
7

Hi Dick

Thanks for the reply. I don't have any violent objection to the treatment. Just wanted to understand so that I could explain it to someone else (like my significant other) in case she asks.

Thanks!
Fred

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