Saving for College

[RachelEllen]

Anyone out there saving for college?

We opened 529's a year ago for our two kids, and I'm having trouble with how much to save. Right now, our oldest is 8 years away from college. My husband wants to save enough to fully fund him for private college tuition. Makes sense. But what do you do if the kid then decides to go in-state? The difference in costs is huge, about $150,000 in today's dollars. I'm more inclined to save about half of what we need in a 529, and put the rest in a money market. No tax advantage, but more accessable to us if he decides to go a less expensive route than private school. Or, can you transfer between 529's if one kid doesn't use it? (His sister is 10 years younger than him, so I've been funding her account at about half the rate as his)

Even with all I've read, I've never seen a satisfactory answer to this question.

 

[OceanAnnie]

My children are younger than yours, but I'm having the same issues. I think the 529 is a great program in a lot of ways. But, I have not enrolled because I'm just not comfortable at this point.

I'm not real thrilled with the stock market. Right now I'm very conservative. I have CDs for the kids that I add to every year. They don't earn much, but we aren't losing money.

I'll be following your thread!

 

[Halle]

Spoke to our accountant yesterday and he told me that the money has to be used for college by the child, can be transferred to another sibling if isn't all used and that the parent may take money out if they need it.

 

[deerhart]

yup you can transfer the money to another 529 or remove it. Though, if you did get a state tax break for putting the money into the 529 account, you may have some tax payment on any funds you remove and do not use for college.

 

[janette]

I'd put the extra in savings in your name. I've got a college senior and we put some in 529s and a few other accounts. Although they lost a bit over the last few years we are still going to cash them right away because when they consider what the students contribution is everything in their name is considered their contribution and will count against any eligibility.

I thought it might be best to leave some of it in the accounts for a few more years hoping to get some of the gains back but we don't really have that option with a 529 but we would with accounts in our names.

 

[tinlizzy]

I invested my son's college tuition in I bonds.

The interest they earn is tax free (when they are in your name and used for qualified college expenses). They can be purchased on-line or at a bank. I bought mine on-line using the money transfer from my bank acct.- very easy.

They can never lose money which was a blessing for me the last couple of years. Some of my son's classmate's 529s (he started college last fall) had lost 50% of their value. You can lose 3 months interest when cashed out before 5 yrs but the principal (the amount you paid for the bond) will never change. Interest is based on 2 variables, a fixed rate and a composite rate based on inflation, and changes every 6 mos. Lots of info if you Google I bonds.

Not sexy but 100% safe and tax free.

 

[OceanAnnie]

I invested my son's college tuition in I bonds.

The interest they earn is tax free (when they are in your name and used for qualified college expenses). They can be purchased on-line or at a bank. I bought mine on-line using the money transfer from my bank acct.- very easy.

They can never lose money which was a blessing for me the last couple of years. Some of my son's classmate's 529s (he started college last fall) had lost 50% of their value. You can lose 3 months interest when cashed out before 5 yrs but the principal (the amount you paid for the bond) will never change. Interest is based on 2 variables, a fixed rate and a composite rate based on inflation, and changes every 6 mos. Lots of info if you Google I bonds.

Not sexy but 100% safe and tax free.

Thanks for the information!

 

[2TxAgs]

We've got $$ in both 529s and in Roth IRAs. The 529 money can be transferred to another child one does not need/use it all. The principle in the Roth can be used to fund education without penalty, as long as the Roth has been held at least 5 yrs. If the child does not need it, then you simply have it as additional retirement income.

In terms of the I-bond, most financial folks will point out that although you cannot lose your principle, it also has almost no growth potential, and the 2% it makes per year cannot match the 5-8% yearly increase in college costs. So - you're not keeping up with the cost increases.

TxAg

 

[prncess674]

Is your retirement account fully funded? Remember kids can always borrow money for school expenses, but you can't borrow for retirement expenses. Realize if you go broke sending your children to school you will then just become a forever burden on them when you get older and you are then dependent on your children for daily care.

Here is an interesting article from Suze Orman
http://www.suzeorman.com/igsbase/ig...vID=101&TnavID=&AreasofExpertiseID=167&skip=1

SUZE SAYS: Many of you have credit card debt, many of you don't have enough money to put a down payment on a home, many of you don't fund your retirement accounts and you have nothing in savings. Talk to your children from an early age about getting grants, scholarships and loans. There are no loans that you can take out to fund your retirement, but there are many loans your child can take out to fund his/her education.

 

[clh2]

We've got $$ in both 529s and in Roth IRAs. The 529 money can be transferred to another child one does not need/use it all. The principle in the Roth can be used to fund education without penalty, as long as the Roth has been held at least 5 yrs. If the child does not need it, then you simply have it as additional retirement income.

In terms of the I-bond, most financial folks will point out that although you cannot lose your principle, it also has almost no growth potential, and the 2% it makes per year cannot match the 5-8% yearly increase in college costs. So - you're not keeping up with the cost increases.

TxAg

We are also using Roth IRA's. We only have 1 child, so no opportunity to let a sibling use the money. The Roth IRA idea was a strategy from our financial advisor. Now - for those that say don't tap your retirement fund...our retirement funds have been getting funded through the contributions we have made to maxing out our 401K's and 403B's along with the company matches I've also never counted our Roth's as part of our retirement, since it has always been earmarked to help out with college expenses.

If I recall correctly - retirement money doesn't count in the FAFSA calculations. And - I will always have control of the Roth IRA..i.e. DD will never gain control of that money except through an inheritance.

 

[DisneyBamaFan]

Is your retirement account fully funded? Remember kids can always borrow money for school expenses, but you can't borrow for retirement expenses. Realize if you go broke sending your children to school you will then just become a forever burden on them when you get older and you are then dependent on your children for daily care.

Here is an interesting article from Suze Orman
http://www.suzeorman.com/igsbase/ig...vID=101&TnavID=&AreasofExpertiseID=167&skip=1

SUZE SAYS: Many of you have credit card debt, many of you don't have enough money to put a down payment on a home, many of you don't fund your retirement accounts and you have nothing in savings. Talk to your children from an early age about getting grants, scholarships and loans. There are no loans that you can take out to fund your retirement, but there are many loans your child can take out to fund his/her education.

Agreed - paying for your child's college is a great idea - but only if you can afford it while taking into consideration all of your needs.

 

[monarchsfan16]

I'm coming at this from the student's perspective, since I only finished my undergrad last year, but I would NOT put enough for a private school education into a 529. Many kids find when they look at schools that they'd prefer a public school. Even if they do want the private school (or out of state school) scholarships are a lot easier to come by at those. I ended up going to my instate school, but thanks purely to scholarships offered with the offer of admission, EVERY school I applied to would have cost within 5 grand of my instate school.

My 529 covered approximately 1/3 of my undergrad costs. My (divorced) parents split the difference, paying from income and liquid savings.

 

[tommya60]

I also use upromise.com. A percentage of what I buy online/grocery store goes into the upromise account. I neglected to download the toolbar until recently, but it does add up...every little bit helps. I can transfer the funds into a 529 if I choose to do so.

 

[cats mom]

My husband wants to save enough to fully fund him for private college tuition. Makes sense. But what do you do if the kid then decides to go in-state? The difference in costs is huge, about $150,000 in today's dollars. I'm more inclined to save about half of what we need in a 529, and put the rest in a money market. No tax advantage, but more accessable to us if he decides to go a less expensive route than private school.

Many kids find when they look at schools that they'd prefer a public school. Even if they do want the private school (or out of state school) scholarships are a lot easier to come by at those. I ended up going to my instate school, but thanks purely to scholarships offered with the offer of admission, EVERY school I applied to would have cost within 5 grand of my instate school.

I know published costs for private schools can be frightening, but monarchsfan is right; many do have large endowments that allow them to offer "free money" scholarships and grants. And the really nice thing, at least IMO, is that many of them are merit based rather than need based.

DD didn't qualify for any need based aid, which was absolutely the bulk of what was offered at the state schools she applied to. But she was offered a full tuition waiver, completely merit based, at the much more expensive (at least on paper) private school she applied to. Of course getting into the private school was no cake walk.

It's great if you can afford to put away enough money to fund a private school education, but it's also nice to know that you may not need quite as much $$$ as you think you do.

So having said that, I like your plan better. I certainly wouldn't want to get stuck paying tax and penalties on 529 gains if I ended up not needing the full amount for higher education.

Good Luck with the college planning.

 

[ceecee]

We are also using Roth IRA's. We only have 1 child, so no opportunity to let a sibling use the money. The Roth IRA idea was a strategy from our financial advisor. Now - for those that say don't tap your retirement fund...our retirement funds have been getting funded through the contributions we have made to maxing out our 401K's and 403B's along with the company matches I've also never counted our Roth's as part of our retirement, since it has always been earmarked to help out with college expenses.

If I recall correctly - retirement money doesn't count in the FAFSA calculations. And - I will always have control of the Roth IRA..i.e. DD will never gain control of that money except through an inheritance.

We are using Roth IRAs as well. When financing college with Grants, certain scholarships will look at what is in the childs name. The Roth is in the parents name. We do have a small amount in a college fund for DD, DH (who is older and will be able to cash in a Roth when DD is in college) has the rest in his name.

 

[TnTWalter]

we're thinking of splitting between an ESA, FLEXIBLE 529 and even doing Uniform Gift to Minors so that they could use it for whatever.



Still hoping market will go up before we move funds around....

 

[punkin]

I would not recommend an UGMA. The assets are counted 100% when determining need, whereas a 529 is a parental account and is counted less for determining financial aid.

 

[RachelEllen]

Is your retirement account fully funded? Remember kids can always borrow money for school expenses, but you can't borrow for retirement expenses. Realize if you go broke sending your children to school you will then just become a forever burden on them when you get older and you are then dependent on your children for daily care.

Here is an interesting article from Suze Orman
http://www.suzeorman.com/igsbase/ig...vID=101&TnavID=&AreasofExpertiseID=167&skip=1

SUZE SAYS: Many of you have credit card debt, many of you don't have enough money to put a down payment on a home, many of you don't fund your retirement accounts and you have nothing in savings. Talk to your children from an early age about getting grants, scholarships and loans. There are no loans that you can take out to fund your retirement, but there are many loans your child can take out to fund his/her education.

We're pretty low on cash at the end of the month, but we do max our retirement savings, pay enough on our mortgage that it will be paid off in 9 more years, and have no other debt. So it's more a question of how to philosophically approach this. If we can transfer money from one 539 to the other, though, that makes the problem much simpler!

 

[tinlizzy]

In terms of the I-bond, most financial folks will point out that although you cannot lose your principle, it also has almost no growth potential, and the 2% it makes per year cannot match the 5-8% yearly increase in college costs. So - you're not keeping up with the cost increases.

TxAg

Actually, I bonds do better than you think. When I purchased my I bonds in May and Nov 2005 they had a fixed rate of 1.2%, then 1%

Interest on my bonds to date
1-Nov-09 4.26% 4.06%
1-May-09 0.00% 0.00%
1-Nov-08 6.14% 5.94%
1-May-08 6.04% 5.84%
1-Nov-07 4.28% 4.08%
1-May-07 3.64% 3.44%
1-Nov-06 4.32% 4.12%
1-May-06 2.21% 2.01%
1-Nov-05 6.93% 6.73%
1-May-05 4.80%

The fixed rate for this 6 mo period is only .30% but this also changes, usually changes, along with the composite rate every 6 mos. Look here for historic data.

Iowa State tuition (where my son chose to go to college) increased 22% last year alone so you are right about I bonds not keeping up with tuition increases. But the stock market and 529's lost big in the above time frame and my personal opinion is that financial people plug investments that are going to make them money in terms of fees, etc.

The stock market has done fantastically well since March and anyone with a 529 based in stocks has outperformed I bonds for sure. But will it last? I'm heavily invested in stocks in my 401K and have a taxable brokerage acct. full of individual stocks and for me personally I can tolerate that risk (and love the reward) but it just wasn't acceptable when it came to my son's college tuition.

Good luck to everyone funding a college account, however they decide to do it!

 

[bonoriffic]

I've already paid for tuition for one of my kids. Our state has a prepaid tuition program. Basically I've already bought X number of credit hours. As I bought when he was an infant, it was extremely cheap. I think 2 full years of college was maybe $23,000. There is no way 2 years of tuition will be that low in 18 years.

The down side is it is for in state public schools. As long as he goes to any in state school it is a 1 to 1 conversion. If he goes private or out of state, then the conversion is based on the average of a few in state schools. Basically if he goes out of state public it will cost a bit more, and out of state private will probably cost a lot more. If the out of state or private school tuition is actually less than the average, it doesn't cost you anything.

This is just tuition, so room and board is whatever the going rate at the time is. If your kid doesn't go to college or doesn't use it all, you can transfer it to a relative. If you want to withdraw at any time you can, and it basically just earns a small interest rate. So if you kid didn't go to school it works out to putting your money in a really poor performing CD, but you will never lose a dime unlike a 529 plan. If you kid goes to public in state, and depending on how much tuition has gone up, you could save $50,000 easily.

Another nice thing was the cost we paid today was deducted from our state income tax for any years you are making payments. (Up to $20,000 or so per year)

College Illinois is the name of the plan we bought into, and there are many others in other states. Some are not as favorable as the Illinois one.