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Paying for College/College Saving

5,186 Views | 54 Replies | Last: 5 yr ago by Diggity
GT_Aggie2015
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Wife and I have an 7.5 week old and are thinking ahead about saving up for her education. Ideally, we'd like to cover 50% of her education with 25% coming from scholarships/grants and 25% coming from her pocket. We plan on having another child in a few years and maybe a third (Lord willing) following the same model. Pros and cons to this method? What is the best way to approach this? 529s? Normal saving and investing? I'd like to get some feedback from the smarter than me B&I people on TexAgs.
JSKolache
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Looked into it briefly, but I'm still on the fence. 529 contributions are after tax, so no advantage there. The earnings grow tax free which is the main benefit. The investment options seem limited to the fund offerings by your provider. 529 has benefits for sure, but not as advantageous as something like a standard IRA/401k.
Thriller
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Except that you can't use the 401k/IRA for college tuition unless you had kids in your 40s.

The 529 makes sense for us, but that's because we get a state income tax deduction here in Colorado. If we didn't get that benefit, or if we lived in a state without similar benefits, I think we would just be investing the money our own in taxable investment accounts.

One other benefit for us is the ability (for now) to use the 529 to pay for private school tuition. That's our main use for now, not necessarily college savings. I expect we will wash money in and right back out of the 529 for K-12 tuition until they change that law and then use our taxable accounts for college.
Duncan Idaho
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If I had kids their college plan would consist of "get out your phone and go to www.goarmy.com"

62strat
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OP you're willing to pay half, what is that $10-$12k a year for tuition and books? I don't know your financial situation, but I plan to just pay as they go. Save up while they are in high school if necessary. It's not like you need all 4 years worth saved up in an account when they start.

Assuming public college here.. obviously private tuition is another game. Also, obviously left out living expenses, as that is all over the map. Some kids live at home, some a dorm, some share an apt with friends, some parents may buy a townhome for child to live in and likely make money on it after 5 years.. if required to live on campus first year, then that adds quite a bit.. but remaining years can be dealt with.

GT_Aggie2015
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62strat said:

OP you're willing to pay half, what is that $10-$12k a year for tuition and books? I don't know your financial situation, but I plan to just pay as they go. Save up while they are in high school if necessary. It's not like you need all 4 years worth saved up in an account when they start.

Assuming public college here.. obviously private tuition is another game. Also, obviously left out living expenses, as that is all over the map. Some kids live at home, some a dorm, some share an apt with friends, some parents may buy a townhome for child to live in and likely make money on it after 5 years.. if required to live on campus first year, then that adds quite a bit.. but remaining years can be dealt with.


It is not that I necessarily want to have all of it saved up all at once. Assuming it is invested in some fashion it really will be more so pay as you go. Maybe it's one of those deals where we take out loans for the tuition piece so all we (mom and I) pay for is housing, food, books, or anything else that comes up if that makes sense. Just trying to think of ways of being proactive now so as to feel the impact a little less when college time does roll around.
ac04
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we went 529 with vanguard. the biggest unintended advantage has been birthday/christmas gifts from grandparents and other family. once they learned what a 529 is (and that they can contribute) they got excited about the idea of helping with college. much better than adding yet another goofy stuffed animal to the already enormous collection or whatever.
Loaded
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ac04 said:

we went 529 with vanguard. the biggest unintended advantage has been birthday/christmas gifts from grandparents and other family. once they learned what a 529 is (and that they can contribute) they got excited about the idea of helping with college. much better than adding yet another goofy stuffed animal to the already enormous collection or whatever.
Same here. Our kids have too much stuff as it is. If family members want suggestions for birthday or Christmas presents, we always remind them of the kids' 529's. Helps avoid unnecessary junk in the kids rooms, and will help them down the road for higher education. Win-Win.
khkman22
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I'm am not 100% sure this is correct, but I believe this is what someone from Ed Jones told me. If you have more than one kid, you can change the beneficiary name on the account, but you cannot transfer the money from one account to another.

So, depending on how close in age your kids will be, I wouldn't try to fund both of them early and then find out kid 1 doesn't need the money because they saved enough of their own, got scholarships or had better returns than projected. You will incur a penalty if you withdraw for non-educational purposes and you won't be able to transfer to kid 2's account.

If you had a 3rd kid, then you should be able to change them to the beneficiary on the 1st account opened to use for kid 3. I would look at opening as few as possible that would still work out based on the spacing of your kids.
jja79
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I say this only partly in jest. Get her golf clubs. There aren't enough quality girl players compared to available scholarships.
GT_Aggie2015
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ac04 said:

we went 529 with vanguard. the biggest unintended advantage has been birthday/christmas gifts from grandparents and other family. once they learned what a 529 is (and that they can contribute) they got excited about the idea of helping with college. much better than adding yet another goofy stuffed animal to the already enormous collection or whatever.
That's a good idea. My wife already has over 25 Disney stuffed items for her. Could always have grandparents and great-grandparents contribute to the college fund!
GT_Aggie2015
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That's good to know.
GT_Aggie2015
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jja79 said:

I say this only partly in jest. Get her golf clubs. There aren't enough quality girl players compared to available scholarships.
I'd be lying if I said we had not thought of that already. Our second oldest nephew is 9 and has been golfing for years now and my wife made the observation last spring that there weren't very many females in the tourneys he was a part of. She then joked that our daughter could become a pro golfer or pro soccer player.
10andBOUNCE
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We are pretty similar to OP. Don't really intend to save up 100% of all college costs before our son goes to college. 50% coverage is a fair number we are aiming at. If we are in a good position cash flow wise when our son is in college and he has earned it, we may go more.

We initially chunked a bunch of cash from us and family into a 529 when he was born. Mentality is to use the power of TVM (let a moderate chunk of money grow for 18-20 years without too much intervention). We did go ahead and get one of the Fidelity Credit Cards that puts in 2% cash back into any account of our choice. We chose his 529 so we really don't ever think about it. That provides about $500 per year to supplement the initial principal we threw in. If we just go at this pace, we should have about $75k saved up without any additional principle investment.
pacecar02
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How does a 529(having the child named in the 529) affect the students FAFSA when applying for scholarships and financial aid?

RangerRick9211
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Our first is due in two months.

We're in TX and will be opening NY or UT 529s. They both use Vanguard.

I'm a believer that college funding will substantially change in the next few decades. As to not over-fund, our plan is to contribute to the gift tax limit for a few years. That figure happens to coincide with our current taxable contribution amount.

In all, maybe 2-3 years of 529 contributions, let that season longer for the tax benefits and pick-up taxable savings again after the 2-3 years.
khkman22
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pacecar02 said:

How does a 529(having the child named in the 529) affect the students FAFSA when applying for scholarships and financial aid?


You open it in your name, but name them as the beneficiary. It either is not factored in, or the impact is reduced when done this way. Do not open it in your child's name though.

All my information should be verified as I am just going off of memory from a discussion 6 months ago.
texan12
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I thought Roth IRA is eligible for college tuition?
Thriller
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I think you can withdraw the contributions (not the earnings) from a Roth IRA for education expenses, but I'm not sure.
GE
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If you aren't limited out of the income stuff, the Coverdell ESA works just like an IRA where you choose what to invest in and it grows tax free. Can only contribute up to $2,000 per year of the kid's life so may need to supplement with 529.
Quinn
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We have a 529 for our daughter. It has been great to have people give $$ gifts to it on birthdays instead of getting more crap toys, like others have mentioned. Our 2nd child is due in March, so I need to look into whether it makes sense to open a second one for him, or just eventually change him to the beneficiary.

Regarding the cost of college, I usually joke that by the time she gets to college (2035), its either going to cost $100,000 per year or be free, so we might as well not even save.
GT_Aggie2015
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Would you be comfortable sharing what that initial investment amount was, even if by PM? If we do 529, this is kind of how we are thinking about approaching it. However, we also realize that the large investment could better work for us in other ways to start and with those gains, we add in over time what we would have originally invested.
GT_Aggie2015
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Thriller said:

I think you can withdraw the contributions (not the earnings) from a Roth IRA for education expenses, but I'm not sure.
Wife and I both have a ROTH and I was not aware of this. I will look into it. Can withdrawals come from either or both IRAs? Guess that would be my initial question if in fact you can do what you say.
GT_Aggie2015
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Never heard of this. I will look into it.
texan12
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You're right, contributions can only go towards tuition. No penalty of course and can still use the remainder on retirement.
khkman22
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Thriller said:

I think you can withdraw the contributions (not the earnings) from a Roth IRA for education expenses, but I'm not sure.
You can withdraw contributions for any reason. However, if you contributed $20,000 to the Roth and it's now worth $30,000, I'm not sure you can take out $20,000 and say it is all contributions. I thought I have seen before that the IRS will say a portion of that $20,000 is gains. If that is true, I'm not sure how it is determined.
62strat
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khkman22 said:

Thriller said:

I think you can withdraw the contributions (not the earnings) from a Roth IRA for education expenses, but I'm not sure.
You can withdraw contributions for any reason. However, if you contributed $20,000 to the Roth and it's now worth $30,000, I'm not sure you can take out $20,000 and say it is all contributions. I thought I have seen before that the IRS will say a portion of that $20,000 is gains. If that is true, I'm not sure how it is determined.
First sentence is correct, you can pull out roth contributions (after 5 years) for any reason, penalty free. Doesn't have to be for education expenses.

Your second thought; it's pretty cut and dry, if you put in $20k, then $20k is considered contributions; you could pull out up to that amount.

Not sure how IRS could say a portion of that $20k is gains if you put in $20k??
10andBOUNCE
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I think it was somehwere in the 6-7k range. Maybe 1k of that from grandparents / other.

Like others have said, college is going to probably drastically change in the next 20 years with either a lending bubble or Bernie paying for it all or extreme costs. Saving modestly in the 529 while doing other holistic type wealth building makes sense to us (paying down the house, staying out of other debt, saving for retirement, etc). We're more interested in being in a good place financially which will allow us to help with college or whatever else comes up.
62strat
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Quote:

Saving modestly in the 529 while doing other holistic type wealth building makes sense to us (paying down the house, staying out of other debt, saving for retirement, etc).
This is kind of my plan. Have house paid off by the time first kid starts college, so between that and my (hopefully) increase in pay, I hope to just be able to afford college out of my current paycheck. By the time my kids are in HS, I'll have a better gauge of the cost of college, and if necessary, start to save at that time.
beb06
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khkman22 said:

I'm am not 100% sure this is correct, but I believe this is what someone from Ed Jones told me. If you have more than one kid, you can change the beneficiary name on the account, but you cannot transfer the money from one account to another.

So, depending on how close in age your kids will be, I wouldn't try to fund both of them early and then find out kid 1 doesn't need the money because they saved enough of their own, got scholarships or had better returns than projected. You will incur a penalty if you withdraw for non-educational purposes and you won't be able to transfer to kid 2's account.

If you had a 3rd kid, then you should be able to change them to the beneficiary on the 1st account opened to use for kid 3. I would look at opening as few as possible that would still work out based on the spacing of your kids.


I don't think that is correct. There should be no issue transferring money between them, or changing beneficiaries. Setting up a separate account for each child is a commonly recommended approach because of that.

AgOutsideAustin
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OP if your kid or kids are going to A&M that 25% scholarship number might be tough. Scholarships from TAMU are extremely hard to get. Maybe you can get some local ones or some grants. I have two there now and to give you an idea my senior kids estimated cost of attendance was around 22K per year freshman year. The freshman kid I sent this this years was about $28K. That's TAMU's estimate and I know you can shave a few grand off here and there but you get an idea of the increase in just 3 years. It's now actually cheaper to live off campus than on campus your freshman year. Out of state SEC schools love suburban Texas kids and are offering good aid. I hate to think what A&M is going to cost in 17 years if you have a new baby. My advice would be to save as much as you can starting now.
jja79
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Best thing about that is you get out on the course also. I've got a 15 year old son who plays competitively and that has allowed me to triple my golf rounds for the last 10 years. He's playing a tournament this weekend and its 70% boys.
GT_Aggie2015
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Thanks. We realize that college and costs will likely be different in 18 years but like I said I just want to do something now that our future selfs will thank later.
GT_Aggie2015
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Oh I know it's tough to get scholarships and such at A&M. I allegedly had "a full ride" and yet somehow still ended up $18k in total debt.
L8HIT
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Too many parents expect their kids to get scholarships and that's a recipe for trouble when planning. It seems every parent I talk to mention scholarships and most are not intelligent people. I ask if they got a ton of scholarship money and they reply no so why would they expect their offspring to get any.

Wife and I told both my kids we are paying for half of their education and living expenses to a public school. That's a 100% more that either my wife or myself received from our folks.

We have the Utah 529 plan.
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