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[rumrunnergirl]

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[jodifla]

I know there have been threads about this is the past, but I've only recently been doing some research on this for my family. Our background:

Our two kids are signed up under the Florida Prepaid College Plan. This is not a 529 plan where you buy funds and your money can disappear depending on the stock market. I pay $250 per month for both kids.

We recently had to clean out our savings and are getting that built back up, and I'd like to open Roth IRAs for both DH & myself. We are in our late 40's. DH works and no 401k or anything is offered there.

I have read here that any money that my kids have in their name when it is time for them to go to college (they are in 5th and 3rd grade) will count against them, so all college money should be in my name or DH's name or another relative's name. Is this true?

Our only debt is our two vehicles and our mortgage. We have no CC debt.

I went to Dave Ramsey's site and he says to have a budget (done), $1K for emergency fund (done), and 3-6 months of living expenses (working on it). He says not to use pre-paid plans for college though, yet in FL at least it is holding up better than disappearing funds from 529's. I really don't know where I could put money and get 12% like his site says, since the market isn't so great right now.

My question is this:
Since I have limited funds to put away, should I cancel the kid's pre-paid plan, take that money and put it into Roth IRAs? It is after-tax money already, so there's no tax penalty. I don't want my kids to be penalized when it's time for college, yet I don't want them saddled with huge debt, and I'd like to get going on retirement savings.

OMG! DO NOT CANCEL THE PREPAID PLAN!!!!!

We have the prepaid Fla. plan for our DS, and are so glad we do.

Many of my friends have kids who are in college or starting now. The prepaid plan is a LIFESAVER! Most of the kids also have Bright Futures scholarships, so the bulk of their college is paid for.

People in other many other states would kill for the Fla. college situation.

 

[Darcy03231]

What happens if your child decides to go to a college not in Florida? Is the money you paid in refundable?

 

[rumrunnergirl]

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[aka-mad4themouse]

If you're following Dave's plan, then you know that the 4th baby step is to put 15% of your household income in Roth IRAs or other pre-tax investments. The 5th step is to fund the kids' college funds.

You cannot borrow to pay for your retirement but your children will be able to borrow for their college educations. It may sounds selfish because as a parent, you do not want to see your child start off life with tremendous debt. But OTOH, you do not want to become a burden to them in your later years because you didn't put the money aside.

 

[clarabelle]

I would love to hear about how I can get a 12% return

 

[rumrunnergirl]

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[rumrunnergirl]

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[HunnyPots]

As a mom with two kids in college, I say KEEP THE PAYMENT PLAN! College is so expensive these days and it's just going to keep going up. As far as your kids being penalized for money in their name, I assume you're talking about financial aid? If so, you have to report ALL savings - both theirs and yours.

 

[PatsMom]

Kids aren't necessarily penalized for having money. All family assets have to be reported but a higher percentage of the child's assets/income are considered to be available to pay for college under the financial aid formulas. But when thinking of this, it is important to keep in mind that most financial aid is in the form of loans anyhow. So if your goal is to have the child graduate debt free, qualifying for financial aid may not be the answer. Saving more money could be.

Nothing in my daughter's 529 plan has disappeared. Plans have a number of investment options and there are safe options available. I am not familiar with the Florida pre-paid plan so I really can't comment on that.

But, saving for retirement needs to take precedence over saving for education. As someone has already pointed out, the kids can borrow money for education - you can't borrow money to pay for your retirement.

 

[*pixie*dust*]

Retirement first. College funds second.

 

[semo233]

Much of this will depend upon how old your children are and therefore, how many years you have until college plus how many years until retirement. Right now, 100% of the money that is in your child's name will be considered college money. Only 33% of yours will be considered...that is why it is said that money is better off in your name. On the other hand, if it is in a vehicle that is not tax free, then you are taxed on the money that you put into that vehicle and the interest.
Find an investment planner that you trust. Educate yourself on the terminology and the different plans. Then make the decision.

 

[NotUrsula]

It also matters how old YOU are. As you get closer to retirement age, the Expected Family Contribution goes down because the Asset Protection Allowance goes up. If you are young it really doesn't matter whether the money is in your name or your child's (unless it is in a proper retirement account); they will expect you to use it to pay for tuition.

This chart explains the sliding scale: http://realcollegesavings.com/blog/asset-protection-allowance/

Personally, I'd keep the accounts, as least as they are now. Cash on hand is always better than borrowing.

 

[metime]

personally I would think my kids would rather have low interest college loans than to take care of me at an elderly age.

We have savings for retirement and college, but if it came down to one or the other, the college loans would be a lot less stressful on the kids financially and emotionally (I know I am a pain in the ***).

 

[rumrunnergirl]

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[HaleyB]

personally I would think my kids would rather have low interest college loans than to take care of me at an elderly age.

We have savings for retirement and college, but if it came down to one or the other, the college loans would be a lot less stressful on the kids financially and emotionally (I know I am a pain in the ***).

Well said. I 100% agree (and I have sent one through private college and we took out NO parent loans).
,

 

[allison443]

Right now, 100% of the money that is in your child's name will be considered college money. Only 33% of yours will be considered...that is why it is said that money is better off in your name.

I don't believe this is correct. My understanding is that for FAFSA purposes, 20% of the child's assets are considered available for college and only a maximum of 5.6% of parent's assets. This is assets, not income.

Have you had a different experience?

 

[MrsPete]

Your kids' college is important.
Your retirement is important.

I don't believe in choosing one over the other, nor do I believe it's impossible to do both. Keys to doing this:

1. Start young. If you start saving for your retirement from your very first job, you're going to have the magic of compound interest on your side, and you won't need to put aside $$$$$$ every month to reach a good, safe number. Same thing for the kids: If you put aside a little from the time they're born, you won't have to put aside the staggering sums required of a person who waits until his child is already in high school.

2. Make it automatic. Have the money directly deducted so that you never see it, and you never consider it "spending money". It's a whole lot easier not to spend what you don't really register as "available".

3. Don't feel that it's a one-or-the-other choice. If it's too late for you to start young, go half-and-half (or 1/3 and 2/3, depending upon your age, your pension, and other factors important to your circumstances). You'll never save enough to cover their education with this mindset, but you'll perhaps be able to cover their tuition, and that's more than some kids have. Likewise, you'll not be able to travel extensively in your retirement years, but you won't be going hungry or sitting under a leaky roof. Some people say, "I'll never be able to save enough, so I just won't bother." That makes no sense. SOMETHING is better than nothing.

I think the REAL ISSUE for most people is that they don't save because they're over-spending in everyday life. So many people have a bigger house, bigger car, bigger credit card bill than they can really afford. If they were keeping to a budget realistic to their income, they wouldn't have to make the choice between the kids and themselves.

 

[dvcgirl]

Well, my advise probably won't make you feel better, but if you're just getting started with saving for retirement (or starting over) and you're in your late 40s....you can't afford to help your children with college expenses. This is strictly from a financial viewpoint/opinion. Your children can get scholarships, grants, loans, do work study...just plain work, go to community college to cut down on costs....on and on. There are no "retirement loans". I understand that this is an emotional issue though.

I just see and hear about a lot of people who are spending lots now on the kids...for activities, clothing, electronics, toys, vacations and saving for college.....when they're not saving enough (or in your case anything) for retirement. It's great to give them a childhood filled with goodies and help them with college, but think about how they may feel as adults when they may possibly have to provide financial help to their elderly parents. This is becoming more and more common.

This probably won't be popular either.....but if you are indeed just getting started with saving for retirement in your late 40s, 15% isn't likely enough to enable you to retire by age 65. You'd need to save closer to 30% in order to replace 80% of your current income (and that would include Social Security in its current form....with no future cuts.....which is highly unlikely) by age 65.

Obviously, this isn't the end of the world if you can't save 30%, but in saving less you'll need to plan for the reality that you'll be working into your 70s, living a lifestyle that is far more spartan than what you may be accustomed to in your current life.....or a combination of those two outcomes.

 

[rumrunnergirl]

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