Should we include our 529 plans in our Net Worth?

A recent change for us is we have established 529 plan account for college savings accounts for our daughter. Long ago my goal was to set aside ~$5k at the birth of my kids, but so far we have roughly $1,800 set aside for our daughter's tuition in these accounts.

I have been internally debating about whether I should include these accounts in our net worth. On the one hand they are definitely assets (although restricted) that technically could be liquidated for some value if we needed to. However the intention of this money is to pay for our child's education. I think of it as a sunk expense.

For now I have decided to leave these off our net worth statements. The intent of the net worth statements is serve as a measuring stick towards our financial goals. Our financial goal is a net worth of $2 million to reach our financial freedom. The idea being we should be able to roughly generate enough cash flow from $2 million in investments to live off of.

I believe its better to recognize these 529 accounts as gifts to our daughter and leave them off the measuring stick for our financial goals. What would be your approach?

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Comments (17)


I would consider listing it only because colleges are going to consider it an asset when they determine financial aid.

I do not include the 529 balance for my son in our net worth statement. To me that's 'his' money and our net worth is really focused on my wife and I, so I consider it completely separate.

That's exactly what I would do.

Interesting question, I never really thought about it. I do consider my kids' college savings in with my net worth as I figure that when my kids start college, I'll be paying that money and I'll want to have someplace to draw down from when I do the reporting. It also makes for less hassle when I'm throwing the reports up for the web page. I guess in the long run, it is an asset that I "own" at least until the kids go to college, at which point I'll start transferring it out of my net worth calculations. It's (hopefully) going to come out some time, question is to do it now or do it later? I'll stick with later, simply because it helps me keep track of it.

I do consider my kids' 529 college savings plan money as a part of our net worth -- for the same reason that another poster mentioned -- that the colleges will consider it to be an asset.

since you already have a line item for total net worth and net worth toward 2 million goal, I say count it in the former but not the latter.

I would not include it in your net worth as they are technically your daughter's assets and part of her net worth. If the funds did not get used when the time came I would then add it to net worth at its then current liquidation value.

In my opinion I only count assets that are there for me and not someone else.

Bobby

I track it in Quicken, so it's automatically included. I mentally subtract it out sometimes, but often I don't bother. The bigger issue for me is that I have other accounts of my kids in Quicken that get included as well (savings and UTM investment accounts). Those *really* shouldn't be included at all.

I think I made some custom reports to exclude all of those things, but I normally just look at Quicken's built-in charts rather than running a report. I haven't looked at whether I can change the rules for those charts.

I count ours in our net worth because it is one of our finanacial goals to provide money for college for our two daugthers (4 and 6). We have a 529 and an Education IRA for each of them (4 accounts total). All of these accounts hold mutal funds, not "prepaid tuition credits". If we got into a big problem we could take out the money easily and pay the 10% penalty. We have a seperate goal for the accounts to reach $200,000 for each child. When I consider our financial goals I consider that I am including these assets that have their own goal. Do you plan to be of retirment age when you reach 2 million? If not then you cannot count your 401ks and IRAs as part of that goal if you cannot accesses them yet. I view the 529s the same way.

You should calculate it in your net worth. It's the same thing as putting money away for retirement. You put money away to pay for future expenses and paying for kids college is considered a future expense.

This year I stopped counting 529 savings in my total assets. I have two accounts in a low cost aged based plan, that has a significant fixed income component. In 2008 I included these accounts in my total allocation. The 529 bond portion skewed my total equity/bond allocation. In last years crash I wish I had a greater fixed income allocation in my retirement accounts. This year I separated 529s from my asset allocation plan.

Kevin

This year I stopped counting 529 savings in my total assets. I have two accounts in a low cost aged based plan, that has a significant fixed income component. In 2008 I included these accounts in my total allocation. The 529 bond portion skewed my total equity/bond allocation. In last years crash I wish I had a greater fixed income allocation in my retirement accounts. This year I separated 529s from my asset allocation plan.

Kevin

Why not include it in your net worth/balance sheet, and exclude from your $2m goal balance (like you do with principal residence)? That way you include the amount as it offsets a future obligation (you won't have to pay that portion of your child's college bills in the future with new cash), but you avoid factoring it in your ultimate goal of $2m in investment assets.

I'd say a definite no for a couple of reasons. One in theory once you deposited the money into the 529 plan it is your son/daughters and not yours. Second if the whole goal of your $2million net work is to be financially independent I don't think you should bother counting this if you are just going to have to subtract it when it gets used for their education. In the long-term this is not money that will have a positive affect on your networth.

Also curious why you include the value of your primary residence in your network when your goal says a net worth of $2M plus the value of my primary residence. I take that as $2M in liquid cash outside of your house.

Obviously there is no right or wrong with this - it just depends on what you are trying to accomplish with tracking your networth. If its to find out if you have $2M in real assets that can be used for financial independence then I say no - if its to feel good about having a large networth than yes.

Here is how I track it on my blog. http://www.myfinancialjourney.com/archive/tracking-my-net-worth

$2MM:

I do not count my daughter's 529 money in my net worth statement. It simply is not accurate to do so because that money is going to be spent by her in pursuit of higher learning.

"One in theory once you deposited the money into the 529 plan it is your son/daughters and not yours."

That is a patently false statement. You may need to read up on the rules regarding 529s. It may be logically what your intent is, but from a tax/ownership perspective, in fact and not theory, the account belongs to the account owner (parent) to do with as they please at all times, subject to tax/penalty liability of course.

As far as including it in parent's net worth or not - up to the parent as far as tracking progress to $2 million goal. For financial aid purposes when the time comes for college, under current rules, 529 funds count as an asset of the parent, not the child and are counted at the parent's lower EFC. However, that is under the federal aid guidelines. The school can count it as they like. However, it is not true that the funds are counted how the parent identifies it - it is set how it is counted, regardless of what parents indicate it to be.

Ofcourse you should include it on your net worth calculation. Net-worth calculation is purely a mechanical process- assets minus liabilities. 529 is certainly NOT your child's asset. If you exclude certain things like the value of your home from your assets, call the calculation something else like "My liquid assets minus liabilities".. not Net-worth.

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