Advice for College Savings for my DS3

[Trinity524]

TIA to anyone who reads this and can respond with assistance.

I have been saving a little here and a little there for my DS who is three's college education. We live in Texas. With interest rates being what they are (or rather aren't), I suppose a reg savings account won't cut it. I haven't had a 1099 on that account ever. I'd like to start a 529 plan or prepaid plan but I know NOTHING about it. I guess my biggest question is, what all is considered when choosing and what if he doesn't go to college in TX? I recently got my affairs in order, am in the process of paying off cc's/school loans and I am making sure that I take care of him for the future.

What are you doing for your children's future?

TIA,

Annie

 

[BridgetBordeaux]

We set up a 529 plan that is age targeted. It invests our money in a balance of stock and bond mutual funds and gets more conservative as our DD gets closer to 18 years old.

CNN/Money and Kiplinger should have articles you can read on line.

Also ask for an enrollment package or two and read through the descriptions.

Over a 15 year period you do not want to be in CD's and/or savings accounts. You must use mutual funds as a method of growing your money. You also need to keep adding fresh money for the next 15 or so years so you are well prepared for the first tuition and fees bill!

 

[Trinity524]

We set up a 529 plan that is age targeted. It invests our money in a balance of stock and bond mutual funds and gets more conservative as our DD gets closer to 18 years old.

CNN/Money and Kiplinger should have articles you can read on line.

Also ask for an enrollment package or two and read through the descriptions.

Over a 15 year period you do not want to be in CD's and/or savings accounts. You must use mutual funds as a method of growing your money. You also need to keep adding fresh money for the next 15 or so years so you are well prepared for the first tuition and fees bill!

Yeah, I only have $3000 in savings for him, so we are expecting to add 325 a month from now on. In mutual funds, is there any type of interest or is it all based on how much you make on your stocks? I am really clueless. I would be embarrassed, but I know my Dis-buds can help me out.

 

[tinker&belle]

We are going to start saving soon too. Both DD's will be in nursery school next year, but after Kindergarten (we have to pay for Kindergarten here if we want them to get to go all day) we plan on using the money for nursery school/Kindergarten to put in a college savings account.

 

[RangerPooh]

Does your state have an advertised college savings plan? In WA there is the GET program. We looked into it a few years ago and decided to pass because of the cost, and now regret it because it was a much better deal that would ahve been locked in. I might be incorrect, but I think that the funds placed into it would also work for out of state schools should your child decide to attend one. The difference is that it couldn't lock in tuition rates from the time that you signed up as each state varies in their cost of attendance.

 

[taaren]

My DS is 4 and I set up his 529, oh, 3 years ago despite my granny's annoyance that we haven't maxed out our 403(b)'s and IRA's first. We chose the Hawaii one over California because the fees were slightly less and I like Vanguard - they also have an age-targeted fund that automatically adjusts for liquidating to cash when they get closer to 18.
One tip: you can choose most state's 529 plans even if you don't live there or plan on educating your child there, and the savings can be used for just about any educational purchases, so worry more about who you want to invest with and the fees than where the 529 is located.
Tip two: I'm a big fan of David Bach's Automatic Millionaire set of books, because he's right, most of us won't 'remember' to save, so if you do it once and have it automatically deducted from your checking account/paycheck every month, its much easier. "Set it and forget it" accounting works best for me then I just review my balances and make adjustments once a month online.

 

[prncess674]

My DS is 4 and I set up his 529, oh, 3 years ago despite my granny's annoyance that we haven't maxed out our 403(b)'s and IRA's first.

You should listen to Granny. Hope your DS gets a REALLY good job and can support you in your old age. Remember kids can always borrow for school, but you can't borrow for retirement.

 

[DawnM]

I won't do a 529 plan. We have a dear friend who has put over 20K in 529 plans only to have none of her kids need the funds.....she is now looking at a 10% penalty for using it for something other than college.

We do have some IRAs that are generic and can be used for college. We have currently saved about 25K, but honestly, we plan to cash flow most of college. We have told the kids they can live at home for free and go to the local 4 year college and we will cover that (it is less than most private schools in the area!) Anything beyond the above expense and they will most likely have to cover the difference.

At this time none of my kids have expressed a desire to go into anything that would require a specific school (ie: going elsewhere) but we may change as the time gets closer. We will see what our finances are like then.

Dawn

 

[Lisa_M]

DD is 3 and I have money set aside for her that she received as gifts. Currently, it is in a savings account and I have been thinking of opening a 529. However if I do, I won't be actively adding to it except for her gifts until we are out of CC debt and SL debt. IMO, it will cost me more if I'm paying more interest in hopes of fully funding her college education. Once I'm debt free, I plan to agressively save for college.

 

[LoveBWVVBR]

Do you still have the prepaid plan in TX? I thought that it was closed at one point?? If you still have it, go for it! We bought Florida Prepaid for both kids and it was an awesome investment IMHO. We also have a 529 Plan (Utah Vanguard) for both girls, but we don't contribute a ton to it. My parents do put in a nice amount for holidays/birthdays, though. That's about all that gets put into it these days. It will cover anything that the Prepaid doesn't cover.

I'm not worried about them not going to college in FL. They will get the full amount of university tuition at that time to use towards wherever they go. We will guide them to going in-state for undergrad, though, since we believe that undergrad is basically the new high school...save the $$ school for grad. school.

 

[BridgetBordeaux]

Regarding the 10 percent penalty for not using the money for college.......

It is only on the "growth" portion of your balance.

Example..............I put in 8000 bucks of my money and it has a balance of 10,000 when my kid hits 18. If I choose not to use the money for her education I get my 8000 bucks back free and clear, but I will owe taxes on the 2000 dollar profit and a 10 percent penalty on the 2000.

 

[clh2]

We've done the following on the advice our our financial planner: We have used a Roth IRA as our vehicle for college savings. (Sorry - this exact moment, I do not recall why we did this, but if we are in the situation were our DD would decide to not go to school, the money is all in my and DH's name.) Actually - anything in our ROTH's is college savings. (And should anyone question this - we have totally maxed out on the respective 401K's and 403b's that are offered by our employers, so while we are technically using retirement funds here, they were not put into the Roth's with retirement as their goal.)

And - on the advise of our financial planner, now that DD is getting closer to college, and very, very likely to attend, we are contributing to a 529 plan (to the max tax-savings that we can achieve in Wisconsin.)

 

[MrsPete]

I don't think it matters so much HOW or WHERE you save -- it just matters that you save. Yes, interest rates are miserable, but you can't do much about that. Since you won't need this money for years, you could consider putting it away in CDs.

The one thing I'd suggest is that you make it automatic: That is, have it directly deducted from your paycheck and shuttled into a savings account (or whatever account you choose). If it's automatic, you can't neglect to do it.

Also, I'd suggest that you keep it in your name rather than his. Why? If you qualify for any financial aid, they'll assume that ALL of his money is fair game for college expenses, whereas only PART of your money is up for their grabs. And your child is a long way away from college. When he's 18, he may be Mr. Responsibility or he may be tempted to say, "Oh, I'll just use a little of my college money to buy that cool motorcycle!" If it's in his name, you'll have no say over how he uses it. Speaking only for myself I'll sacrafice for college but I expect my girls to fund their own luxuries.

I do suggest that you consider maxing out those 401Ks, especially if you have a company match. You have years to save for his education, and the fact that you've started says a great deal. Splitting your savings between your retirement and his college isn't a bad thing -- and if you don't have every penny of his education in an account before he begins, that isn't a bad thing. You'll likely still be working, and (in theory) you'll be making a higher salary than you are now -- if you have the lion's share in the bank for his education, you can "top it off" with current earnings when the time comes. However, if you pass up putting money in that 401K now, you're giving up the chance to let the magic of compound interest work in your favor.

 

[taaren]

You should listen to Granny. Hope your DS gets a REALLY good job and can support you in your old age. Remember kids can always borrow for school, but you can't borrow for retirement.

Thankfully we have Roths, money going into 403b's never match, and we both work for the state, so unless the State goes bankrupt (entirely possible but not likely) we will have pensions. I believe in balance, and part of that balance is making sure that DS has the same opportunities I did. We have thought this through and what we're doing is best for our family.
And by the time we retire the way things are going now Medicare won't be available until age 90 so we'll have an extra 20 years to work! ....

 

[Eeyore1928]

We did the Flroida pre paid plan for our dd when she was 2. Paid that in full at $ 20,000. Hopefully all she will need is room and board. So we will cover that when it comes time for that. Of course books we will also cover. Hopefuly she will be all set, and can start her life with no debt

 

[lady_bug_888]

I live in Canada and things are a lot different here, but I thought I'd mention what we do.

We have two children: DD 11 months and DS 7. Our DS just has a simple savings account with several hundred dollars in it as well as a few savings bonds. We have not done more for him as of yet as he is my step-son and I can't apply for some things on his behalf and trying to work with his other mom has been problematic because she's always in and out of hospitals.

DD on the other hand...we opened a RESP (registered education savings plan) for her when she was 2 months old. We put a set amount into the plan every month (we can increase any time) and the bank takes our money along with everyone else's and invests it. The plan matures in 2025 and currently is taking larger risks but will become more conservative as it approaches the maturity date. In addition to the money we put in, DD is eligible for several government grants throughout the course of the plan. DD also has a savings account for money given to her from relatives and some savings bonds we have purchased for her.

We are doing what we can of course, but I agree with a PP who said "you can borrow for college but not for retirement" DH and I both contribute to our retirement plans and DH will get a pension through work. Retirement has been planned for before we set aside for college.

 

[Trinity524]

Does your state have an advertised college savings plan? In WA there is the GET program. We looked into it a few years ago and decided to pass because of the cost, and now regret it because it was a much better deal that would ahve been locked in. I might be incorrect, but I think that the funds placed into it would also work for out of state schools should your child decide to attend one. The difference is that it couldn't lock in tuition rates from the time that you signed up as each state varies in their cost of attendance.

There is the Texas Savings Plan. The Prepaid is no longer available.

 

[Trinity524]

We did the Flroida pre paid plan for our dd when she was 2. Paid that in full at $ 20,000. Hopefully all she will need is room and board. So we will cover that when it comes time for that. Of course books we will also cover. Hopefuly she will be all set, and can start her life with no debt

This is exactly why I want to do a pre-paid. Too bad Texas doesn't want to participate. I can't think of a better gift than the gift of education. I also don't want to be eating cat food, so we also put into our 401k's at work

 

[LoveBWVVBR]

This is exactly why I want to do a pre-paid. Too bad Texas doesn't want to participate. I can't think of a better gift than the gift of education. I also don't want to be eating cat food, so we also put into our 401k's at work

If memory serves me, Texas *had* a Prepaid plan way back when, but they lost $$ on it and they closed it to new participants. I think that that was TX anyways. That's why I questioned the Prepaid option in your original post...I could have sworn that that ship had sailed a long time ago. Too bad because Prepaid plans rock IMHO. I am so, so thankful to have them for my kids and I hope that FL never closes their plan to new participants. If you can believe it, not ONE of my friends has one of these plans for their kids They don't see the value in them (yet).

 

[cruisnfamily]

We did the Flroida pre paid plan for our dd when she was 2. Paid that in full at $ 20,000. Hopefully all she will need is room and board. So we will cover that when it comes time for that. Of course books we will also cover. Hopefuly she will be all set, and can start her life with no debt

Just chiming in to say that you shouldn't think that "all she will need is room and board" means it will be inexpensive for you. I have the prepaid FL plan, bought and paid before the differential so we're exempt from that. We did tuition and local fees, so all we need is "just room and board" too. DD18 starts college next fall. Well the room and board is double the tuition! So sure the prepaid plan will send the college the $5,000 per year that in state tuition normally costs and I get to come up with the $9,000 per year for room and board. I just never really realized how much room and board costs and that it is so much more expensive than the tuition. I thought "just room and board" would be cheap.