Short answer: no because we're planning to have kids that will go to college.
I opened a 529 account to pay for my wife's education. She's currently going back to school as part of a career change. Her tuition is currently about $4,000 per semester. I have the choice of paying that $4,000 out of her 529 account or out of my checking account.
Since this is a financial decision, it makes sense to look at the net present/future value (NPV and NFV, respectively) of both options. Since the NPV of the $4,000 in my checking account and the $4,000 in my wife's 529 account that I'd use to pay the tuition is the same, $4,000, we'll have to use the NFV.
What is net future value?
Net future value is how much something is worth at a given point in the future.
What are my options?
It took me a while to figure out exactly what my two options are.
I treat my checking account as a zero balance account. I keep enough in it to cover all of my outstanding credit debt, my next rent payment, the $2000 minimum to avoid monthly fees, and a $2,000 buffer in order to really make sure I don't incur any monthly fees. Any amount above that I sweep into my brokerage account for investing.
If I go with Option Withdraw and use money in my wife's 529 account to pay her tuition, then I'll have $4,000 to invest in my brokerage account and $0 to invest in my wife's 529 account. If I go with Option Save for Later and use money from my checking account instead of making a 529 withdrawal, then I'll have $0 to invest in my brokerage account and $4,000 to invest in my wife's brokerage account.
So the two options aren't about which account do I spend from. The two options are do I invest $4,000 in my brokerage account or my wife's 529 account.
How much are my options worth?
To calculate how much each choice is worth in the future, I'll choose a time horizon of 20 years, an investment growth rate of 5%, and a capital gains tax rate of 15%.
Option Withdraw: Invest $4,000 in my brokerage account
The money invested in the brokerage account will grow at 5%, and then at the end I'll pay 15% of the gains in taxes:
NFV_before_taxes = $4000 * (105%)^20 = $10613
NFV_after_taxes = $10613 - 15% * ($10613 - $4000) = $9621
Option Save for Later: Invest $4,000 in my wife's 529 account
The money invested in the 529 account will also grow at 5%. The big benefit is that I won't have to pay any taxes at the end.
NFV = $4000 * (105%)^20 = $10613
Since I can change the beneficiary of my wife's 529 account to be one of our kids with no penalty, it makes more sense to do that than to use it now. The money in the 529 account will be worth about 10% more in 20 years if I leave it alone and let it grow tax-free.
Photo by Kyle Glenn