College savings for kids?

[csmommy]

My suggestion is to do both.

Or put all the money into retirement & get financial aide for college. The sad truth is College Savings Plans get held against you when you apply to college.

 

[ZephyrHawk]

I will say what I have said in other threads about this issue: "I cannot quantify how important it was for me that my parents ensured that my college education was paid for before I was out of high school. I cannot put a price tag on the relief I felt knowing that my choice in education would not be based on any financial considerations. I can only give my child the same gift, and hope that she does the same for my grandchildren."

I will also save for retirement.

 

[TwoMisfits]

Perhaps a better way of sorting out what to pay yourself for 1st...
1. All tax-advantaged retirement assets get funded 1st (401K, IRA, Roth IRA) to their max taxable benefit
2. Once you max those resources, fund tax-advantaged college funds to their limit (some states do give both a state income tax break for what you put in and then another tax break when the money comes out, but they limit the amount you can put in per child per year)
3. If there's anything left (and most, except the tippy-top %, will not have anything left - we never do - heck, we can never complete #2 in full, then fund what you deem most important...

 

[crisi]

I've known too many people who haven't saved believing it would cut their financial aid, only to have their incomes be high enough so that their EFC was so high that they needed private loans at high interest rates to pay tuition.

Frequently we get those threads here, and it always shocks people to discover that the government expected you to save.

 

[MinnieForMe]

Save as much as you can comfortably afford. I freaked out when I first saw our FAFSA expected family contribution. We had planned on giving our kids 20K a year but our oldest can only get the degree he wants at a private school (42K a year). I wish we had saved more but he should make it through with minimal loans as we'll find a way.

 

[runwad]

I don't know too many people that get free money for college:

1. The Federal Pell Grant is usually awarded to undergraduates who have a high degree of unmet financial need. Students whose families have a total income of up to $50,000 may be eligible for the need-based funding, though most Pell grant money goes to students with a total family income below $20,000
   Federal Pell Grants - Scholarships.com

Save, save, save, and then save some more, not too many are going to qualify for the grant money. Yes the accounts can be switched to another beneficiary if your child doesn't use it if you don't want to pay the penalty. I plan to keep my kid's accounts open once their done with them and start saving small amounts for future grandkids.

 

[clh2]

My advice came from our financial planner; and was really geared for our situation.

We saved a bunch in a Roth IRA, long before our dd was off to school. When she got to lat middle school and throughout high school and for the rest of this year, we are funding a 529. and when DD started college, we started funding a 529 for me, and for DD's last semester of school, we are going to recharacterize my 529 to DD. Everything in the Roth that we do not use will stay there until we need it for retirement.

If you over save in a 529; you only get taxed/penalized on the earnings, not on your contribution

Good luck to all of you, we are finally in the home stretch, DD only has 2 semesters left!

 

[aprilgail]

I have been putting away 50 a week into a 529 for about 15 years- as soon as I got her social security number I opened a 529. My brother also has one for her but he puts a bit more into his then I do- he is a teacher, not married no kids. It's very important to me that she doesn't have to start out her adult life with a bunch of debt from college.

 

[tvguy]

My 2 cents.

If you save for college & apply for financial aide, it gets held against you.

You cannot take a loan out for retirement.

My suggestion is to fund your retirement.

Only problem is, unless you are very near full social security retirement age, money you are putting into a retirement plan is money that FAFSA requires you to add back into your income as money you could be using for child's tuition.

 

[supersnoop]

Only problem is, unless you are very near full social security retirement age, money you are putting into a retirement plan is money that FAFSA requires you to add back into your income as money you could be using for child's tuition.

Your contributions will be counted as income, but the account will not be included as an asset.

Keep in mind that Roth contributions can be withdrawn without penalty. It's probably best to max out your roth and then dip into it if you come up short for college.

 

[tvguy]

Your contributions will be counted as income, but the account will not be included as an asset.

Keep in mind that Roth contributions can be withdrawn without penalty. It's probably best to max out your roth and then dip into it if you come up short for college.

Correct, the money you are putting into retirement each paycheck is the money they want you t spend on college instead, not what you had in the account prior.
Roth IRA's are a whole other can of worms. I don't have Roths, had both my CPA and my Financial Planner crunch the numbers and they didn't make any sense for me. Short reason.....I will be in a much much much lower tax bracket in retirement than I am now.

 

[craigkerstiens]

Perhaps a better way of sorting out what to pay yourself for 1st...
1. All tax-advantaged retirement assets get funded 1st (401K, IRA, Roth IRA) to their max taxable benefit
2. Once you max those resources, fund tax-advantaged college funds to their limit (some states do give both a state income tax break for what you put in and then another tax break when the money comes out, but they limit the amount you can put in per child per year)
3. If there's anything left (and most, except the tippy-top %, will not have anything left - we never do - heck, we can never complete #2 in full, then fund what you deem most important...

I fully admit we're in a good position, #1 is not a problem for us at all, we hit that early in the year. #2 we could hit, but our daughter is currently 2 years old. And with compound interest if we max it out every year for the next 10 she'll have a small fortune. I was more curious on what most feel is a safe amount as college for kids and how many are expecting a reasonable amount of compound interest, though I fully understand that's a huge unknown and crazy to expect great insights. At this point I should probably quit complaining and assume she'll probably be quite fine, though I suppose at the same time can't help but still moderately stress in the back of my mind

 

[crisi]

I fully admit we're in a good position, #1 is not a problem for us at all, we hit that early in the year. #2 we could hit, but our daughter is currently 2 years old. And with compound interest if we max it out every year for the next 10 she'll have a small fortune. I was more curious on what most feel is a safe amount as college for kids and how many are expecting a reasonable amount of compound interest, though I fully understand that's a huge unknown and crazy to expect great insights. At this point I should probably quit complaining and assume she'll probably be quite fine, though I suppose at the same time can't help but still moderately stress in the back of my mind

Here is how I did the calculations.

I knew my husband wanted our kids to be able to go to a private liberal arts college if possible. I also knew tuition was growing faster than the stock market gains. So I set my staggered goals and figured tuition inflation would pace stock market gains - at least enough to be a wash more or less.

The first goal was to set aside four years at a state school - for us that's about $20k a year, so $80k each.
The second was to up that to get them four years without room and board at my husband's Alma Mater - I'd take care of the room and board out of pocket - that was about $40k a year, so $160k.

Then I stopped. We moved the money to our external to tax advantaged retirement savings (which we maxed - until a few years ago when that got to the point that we decided we'd be wanting the money sooner than 59 1/2 and we stopped that too - and we are currently semi retired).

We have a stock portfolio outside of retirement we could use to subsidize college. It also became fairly obvious during this process that my son was not a small private liberal arts school kid (this didn't happen until middle school, and by the middle of his Sophomore year we knew it was trade school - but that is too late to start saving). If he went to college, he'd be happiest at a place like St. Cloud State. It also became obvious that my daughter would be on the grad school plan.

And just kept reminding myself that we were lucky to be able to save for retirement plus college plus put savings aside and still travel. That cuts down on some of the stress.

Also think about your values and your goals for your daughter and yourselves. If there will be more kids, keep in mind that you need to plan for two (we continued to save at the same rate for my son - and we won't spend his college money until he's well into adulthood - plenty of kids like him decide that they should have gone to college and go in their mid or late 20s.) Some people feel strongly that their kids should pay for some of their school - have some skin in the game. Some think that a state school is the right choice and won't be facing $50k tuition bills regardless of if they can afford it. Some people value early retirement (it wasn't our top priority, but its in there), or travel, or granite countertops before extensive college funding.

If you are lucky enough to be able to max out retirement savings, take the money you don't need to spend and figure out what fits your goals for college. Put that towards college, throw the rest in a Vanguard Admiral funds. In the end, you might not max out the tax advantages, or might end up paying a little penalty, but you won't be looking at a private parental loan at 7%. (Which is what they are now).

And also keep in mind that financial aid is a dream for people like us. We always said we'll be lucky of the financial aid officer doesn't laugh in our faces and just waits to snicker until after we leave. If you are really doing that well, it won't matter what you save, your income is going to do you in on the FAFSA (unless you put six or seven kids through college at once). Any advice to not save to max aid doesn't apply to people like us. You might see a private package to get your daughter to pick one school over another (particularly if she is top of the class and chooses a mid-tier college) or merit scholarships. But it will likely be fairly token in the scheme of things. I have a friend whose son graduated from Stanford after Stanford was free if your parents made less than $130k or something - guess what, they used every penny of his college savings because they made more than the cut line.

 

[disneymagicgirl]

We aren't saving for college at all yet. I may begin doing that after we max out 401K, IRA, and HSA every year. We are getting closer but not there yet. I am a SAHM so when I go back to work when my kids are older, my salary will all go towards paying tuition. Anything we can't cover they will have to pay for/get loans. Nothing wrong with them investing in their own future. I paid all my college myself and came out with a nursing degree and only $20k debt. Makes me appreciate it more.

 

[Colleen27]

I'm wondering about this too but from the other end of the spectrum - We have saved modestly but as a single income family haven't been fully funding any long term savings to the levels experts recommend. But now we're in the position of our income doubling right before we get to the college years, and I know the FAFSA formulas will assume a level of savings based on our income at the time. Plus we'll be going from below the "no family contribution" threshold at the private colleges DD is considering to just above it. So we're trying to figure out how to scramble to make up the difference. I suspect I'll be working just to pay college tuition for my first few years after finishing my degree. I just hope it'll be enough!

 

[crisi]

I'm wondering about this too but from the other end of the spectrum - We have saved modestly but as a single income family haven't been fully funding any long term savings to the levels experts recommend. But now we're in the position of our income doubling right before we get to the college years, and I know the FAFSA formulas will assume a level of savings based on our income at the time. Plus we'll be going from below the "no family contribution" threshold at the private colleges DD is considering to just above it. So we're trying to figure out how to scramble to make up the difference. I suspect I'll be working just to pay college tuition for my first few years after finishing my degree. I just hope it'll be enough!

Is there anyway to defer compensation until college is done?

 

[csmommy]

I don't know too many people that get free money for college:

1. The Federal Pell Grant is usually awarded to undergraduates who have a high degree of unmet financial need. Students whose families have a total income of up to $50,000 may be eligible for the need-based funding, though most Pell grant money goes to students with a total family income below $20,000
   Federal Pell Grants - Scholarships.com

Save, save, save, and then save some more, not too many are going to qualify for the grant money. Yes the accounts can be switched to another beneficiary if your child doesn't use it if you don't want to pay the penalty. I plan to keep my kid's accounts open once their done with them and start saving small amounts for future grandkids.

While we make too much to qualify for the Pell Grant DS receives 20K in Merit & 10K FA each year b/c the school he goes to wants him. It is a small LAC in DC - he did get into higher ranked schools but this one gave him the most money. His grades were fine (88 unweighted), but not amazing, SAT score was good (1900) he did have good leadership skills, a nice EAC resume & interviews very well. We also feel kids need to have some skin in the game. We said we would pay for what a NYS school (SUNY) would cost (no loan taken out for this) & he needs to make up the difference. Between what we are paying & what the school is giving him he will graduate owing $10K total which we feel is fair.

The small selective LAC schools that DD has been looking at for the past year say they save their Merit scholarships for those students they want whose EFC is low - these schools rank in the 30's nationally. With 2 kids in college next year our EFC will be lower so we are hoping this works out in her favor. She is also looking at schools who are not ranked as high (ranked in the 90's nationally) they want her as she has a nice GPA, taken AP's, above average ACT scores, good leadership, extensive ECA's, & interviews very well. In the conversations we have had with them they say they will offer her a very nice package.

Every school DS applied to offered him some money - just not the NY state schools. I tell you all of this so you understand that you need to do work positioning your child for college. This is how it has worked out for us & we are very thankful. But I did a lot of research, we went to a lot of schools & have interviewed with them all.

 

[Mrs. Ciz]

csmommy - I understand where you are coming from. I had a very similar conversation with DH's family. They all assumed my valedictorian son would get a free ride to college. I had to explain that if he chose to attend the very best school he could get into (a top 25 school), we would have to pay. If he went to a smaller, much lower ranked school, they would pay for him to attend as they want kids with his stats to beef up their numbers.

DS's guidance counselor also explained it to him and tried to get him to apply to a couple of small Catholic colleges. DS wouldn't hear of it. He worked his tail off in school and wanted to attend the very best university that would take him. Lucky for all of us, he chose UVA, a nationally top ranked public university in our state. We have in state tuition covered for both our kids thanks to the Virginia Prepaid program. He won't have any student loan debt until law school - if he stays on that path.

 

[csmommy]

csmommy - I understand where you are coming from. I had a very similar conversation with DH's family. They all assumed my valedictorian son would get a free ride to college. I had to explain that if he chose to attend the very best school he could get into (a top 25 school), we would have to pay. If he went to a smaller, much lower ranked school, they would pay for him to attend as they want kids with his stats to beef up their numbers.

DS's guidance counselor also explained it to him and tried to get him to apply to a couple of small Catholic colleges. DS wouldn't hear of it. He worked his tail off in school and wanted to attend the very best university that would take him. Lucky for all of us, he chose UVA, a nationally top ranked public university in our state. We have in state tuition covered for both our kids thanks to the Virginia Prepaid program. He won't have any student loan debt until law school - if he stays on that path.

Yes, I hear you. DS wanted to be in DC as he is a Poly Sci major, so this worked out very well. And yes, he is at a Catholic University.

DD feels like your son did - she worked very hard & is not interested in schools affiliated with any religion, but she does not want a large school. So regardless of how well any of the SUNY's are ranked they are too big for her. She is mostly looking at need blind, full need schools. We shall see how it all falls out.

 

[crisi]

Those sorts of competitive tuition packages tend to occur regardless of income or savings - they do have far more to do with getting better students into the student body.