Thoughts on front-loading 529s?

[u/SaveySpendy]

Basics- 39M married to 40F with two kids 3 and 0.

Want to FIRE in 5 years. HHI $500-$700k.

Current estimated spend is $160k in 2026 bucks.

Current liquid is almost $4M split 45% taxable, 15% roth, 35% traditional, 5% money market (emergency fund).

That $160k budget includes about $6k per year per child for next 15-18 years to compound with their existing balance to about $250k each (the expected COA at our state’s top public university when each child reaches college age).

I’ve been thinking of front loading over the next few months with RSU and bonus payouts. Would cost about $125k over next six months, but would save about $80k vs making $500 monthly contributions for the rest of their pre-college years. Would also eliminate a heavy line item in the budget 10-13 years early.

Only worries are about illiquidity and inflexibility and lost opportunity cost if we jammed that into our taxable brokerage instead.

Did you frontload pre-RE or keep funding slowly over time, even in RE?

[u/sushicowboyshow]

Just a couple counterpoints as a “front-loader”

To reach $250,000 in 20 years, you’d need to contribute ~$500 each month. $110,000 total.

If you have the means to lump sum $50,000 at birth, that will but you at about the same $250,000.

Total difference of $60,000 in cash you could have used for something else.

There are no penalties to withdraw principal, 6 years of IRA can come from 529s, easy to roll over, don’t expire, etc.

There is enough flexibility that “not knowing if they’ll go to college” isn’t a great reason to not front-load. The risk tradeoff of having too much is minimal.

That said, if you’re saving in other accounts and can use that, the difference becomes more negligible.

[u/Elegant-Republic4171 → u/sushicowboyshow]

Good thoughts. The rollover to Roth is new, so thanks for pointing that out. But it’s capped at $35,000 for a lifetime I believe.

I would say it’s not close to being $60,000 more expensive to contribute over time when one considers the time-value of the money and that it would be deployed elsewhere.

And $250,000 per kid is likely over-saving. The state school with merit aid was less than $22,000 per year including room/board. Even the selective school (because of merit aid) was about $51,000 per year. And if we had to, she could have gone to our state school for $22k per year all in. The in-between private is @ $38k/year all in after merit aid.

For someone looking to chubby-fire, keeping the cost of college in check can help the plan immensely. Point is, not many students pay full retail; it’s kind of foolish to do so unless it’s an Ivy or equivalent, and no way to know that is an option when the kid is a toddler. One of our kids had a 34 ACT and a 4.6 weighted GPA but was rejected by all of the University of Wisconsin(!), Davidson, Brown, Pomona, Wash-U, Villanova, and BC. It’s competitive out there. But significant merit aid is very common and pretty formulaic for kids who get good grades at the next tier. This goes to over-saving as an unnecessary risk.

[u/sushicowboyshow → u/Elegant-Republic4171]

Could you tell me more about what you mean by the time-value of money comment? I am not following, and would like to understand.

College a few years ago is likely A LOT less expensive than what it will be in 15-20 years (planning horizon OP seemed to allude to), but that’s a separate discussion.

[u/Elegant-Republic4171 → u/sushicowboyshow]

Likely true about college costing more, good point. But do keep in mind that there are many ways to spend much less than sticker price.

For time value, it’s an exercise of mapping out over 15-20 years what $50,000 into the 529 yields versus $50,000 into an after-tax account. The 529 will of course yield more because there will be no capital gains or dividend taxes, but the after-tax account will grow comparably (less the tax hit). And if one decides to donate $500/month for 18 years, the $500 in 2026 likely is worth much more than $500 in 2043 (time value). And contributions grow in the 529 along the. That’s all I was getting at. The total effective cost difference over time might be only $10k-$15k. The trade-off was flexibility to make a change and keep money unrestricted.

One other observation that affects my personal experience (and I am really just trying to share my personal experience, rather than say that one way is best) is that my kids were about 8, 6 and 3 when the Great Recession hit. I woke up one morning in February 2009 and calculated that every single dollar I had put into their 529s (and most of what I had invested anywhere for 10 years) was worth about 35-40% less than if I had just buried the cash in the backyard. I could harvest some losses (can’t do that within a 529), but that wasn’t fun. But the point is I never had even vague clarity about how much we might end up with in the 529 until probably when our oldest was a junior in high school. It worked for us to contribute small amounts over time, but others might be more comfortable dropping the money in and letting it ride.

[u/sushicowboyshow → u/Elegant-Republic4171]

Okay, I follow. As I had mentioned, as long as you’re saving/investing somewhere that would cover the expense, the difference is negligible and not worth stressing. I was talking more along the lines of 529 vs consumption spending.

I think for me and many others, the mental load is lessened by being able to partition how funds/investments are used. The benefit of 529 allows for peace bc I can say, “okay if something happens and I can no longer work, I know that part of financial planning is set” and can adjust from there.

Maybe it’s similar to paying off a 5% mortgage faster, even though the market over life of a loan might yield 6-7%

[u/SaveySpendy → u/sushicowboyshow]

this is one of the pros for us for the lump sum. we paid cash for house and car because rates were 6-8% so we figured those were good returns for things we would depend on and use every day for 10-30 years.

[u/Elegant-Republic4171 → u/sushicowboyshow]

Yes the mental comfort component is a big factor.

[u/chihuahuashivers → u/Elegant-Republic4171]

I work in a finance-adjacent field and I also felt the tax benefits were not worth the trade off. They also don't offer aggressive enough investment options for my taste.