I'd recommend prioritizing your retirement first and foremost. If need be, your kids can take out loans for college but you can't do the same for your retirement. With that in mind, I'd put what you need to toward that goal and then use any remaining funds toward the 529.
this post was submitted on 10 Jun 2023
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Yeah, that is a very good reminder. I’m definitely worried about being dependent on them someday, I really do not want that to happen. Thanks for highlighting how front-and-center that is.
We just finished childcare (both are now in public school)
So the plan is to take what we were paying in childcare and put it in their college plans per month.
That ending bill was about 500 bucks. So 250/kid/month.
Oh, I like that line of thinking! Thanks a lot for that.
For us it was the best way to not adjust but still keep that going to the kids future. And we don’t really notice it since it’s already accounted for.
That said we also signed up for that type of plan that can be used for trade schools and the like. College degrees are flooding the market and becoming devalued. It’s possibly that money can be better spent on a specific skill if the kid so wants to pursue it.
And if they want to go to a fancy private or out of state, they will need scholarships or a way to fund.
I fully recognize this may not be enough to pay for all of college, but at least should cover a very good chunk of it. And again, without really making a change to our cost of living or income:expenses.
Yeah, I’ve been delaying putting money into a 529 exactly because of college degrees being overvalued. But now I’m regretting that choice, considering they indeed can be used for other stuff like you said, and also because of the new ability to transfer to a Roth IRA without penalties. Also, I’ve learned that in my state (Illinois), only ~5% of the money placed on those 529 count towards getting grants and loans; so basically the more you put money in there as opposed to just giving it to your kid from a regular bank account, the more money you get from elsewhere. Pretty compelling.
But yeah, at the end of the day, unless the landscape changes dramatically, I fully intend to have the “colleges are mostly scams” talk with my kids as we get closer.
I wouldn’t feel too bad. That’s a new chnage that occurred during the Trump Admin. We transferred to a compatible 529 when it did chnage.I think Utah or something. But I was concerned like you prior to that (we just didn’t have much put in). No way you can predict the future.
Definitely will have a similar convo with my kids and impress that if they do want to go to college, stick to degrees that give you skills and certifications coming out (ie: engineering, finance, nursing etc etc ) not something like political science.
My state gives a small tax incentive up to $3000 in contributions per child per year, so we put in $250/month for each of our kids to maximize that. If you live in a state that gives any sort of tax incentive as well, take a look at that as a starting point.
Oh, yeah, I’m glad you’re bringing that up, thanks; my state (Illinois) allows to deduct from state taxes up to $17k per year per account in donations, which ain’t bad, and is in fact more than I’d be willing to put in, I think. Which is useful, because it goes to show that even though I’m confused and feel like I have no idea what a good amount is, I do actually have some idea of an upper bound I probably wouldn’t go over.
We have a six-month old and decided that we don't want to go too deep into a 529. Neither of us went to college and we're successful, so we don't want to assume she'll want to.
We figure 10-20k is a reasonable amount for her to have in there. We assume she'll be able to use that much even without college. We're dropping a few thousand dollars in there now, and I'm going to add a little bit over time. We're doing a regular taxable account for her also that I'll be putting more money into.
I think this is all very sensible thinking. Thanks a lot for sharing.
I think at least suggesting the trades is a good idea. An ai can replace an accountant or administrative assistant or teacher a lot faster than a house painter, elevator mechanic, forklift driver, AC repairman, etc.
Edit: trades are generally thousands of dollars cheaper to learn and they will have a job no matter where they move. An AC mechanic may spend $15k on school and have college paid off in a few years where a doctor will spend $500k and be in debt forever
Edit 2: and if your kids decide to go for something stupid like underwater basket weaving they can do it on their own dime
This is a good suggestion, and I am definitely worried about college degrees being overvalued. I’m totally gearing up to having to talk with them about the various choices and how financially reasonable each is, in quite a bunch of years. But ultimately, I also know that the outcome may be a compromise between financial reason, and their desires and ambitions. Their choice might not be ideal, and while I would probably disagree to help fun a frivolous degree, I want to have prepared for them to have various opportunities, not just the optimally least risky ones.
Damn, being a parent is hard.
Oh, absolutely its their life and their choice in the end. You dont have the right to tell them where to go and what for. All you can do at the end of the day is give them a suggestion, explain your reasoning behind that suggestion and point out that you will not spend your hard earned money on a pointless degree and that if they want it they may do it on their own dime
Prior to financing college education for your children, you need to make sure you have no high interest rate debts. So, all credit card statements are completely paid off monthly, no high interest personal loans, etc. Then you need to make sure you are paying all bills on time, that you are properly saving for old age (you need more money than you think), and then you are saving for upcoming expenses (do you have an old car? Are you saving for repairs and replacement, etc.?). After all your required monthly expenses are met and your savings for retirement and near future are met, then you can consider saving for children's education.
So, you're ready to put money into a college account. First, does your state have a good system out of 529 and a great state school? Some states have college savings plans for their school system that are hard to beat. If they do, you should seriously consider that plan over a 529. Many states will have better tax savings for their plans than a 529, etc. You really need to sit down and look at that stuff. Do the math and compare. If you still decide that the 529 is best for your situation, look at the various 529 plans available and what tax benefits are best for the state you live in, and compare that to the investment opportunities available and their expenses (ER, front load, back load, %fee, etc.). Once you've covered all of that, if you have a plan that you want to invest in then you need to save up for their minimum (unless they have no minimum balance), and then you put that money into the plan. Once the money is in the plan, make sure to go into the plan and invest that money into one of the investment options. If you do not know which invest is best, look for a target date fund that is targeted for the year that your child would go to college. Some 529s just have a questionnaire finding out your risk aversion, and then they will put the money into a 529 portfolio that agrees with your risk profile and then they adjust that towards lower risk investments as you get closer.
If you are sitting on a pile of cash for this, and still do not know what to do, please put that into an online high interest rate savings account. If you have a personal brokerage account outside of a retirement savings area, you can see what short term interest CDs you can get. I'm able
with the recent ability for kids to convert to a Roth IRA up to $35k with no penalties if they don’t use the funds, has that become the new golden number?
Unless your kids are getting close to college right now, I would not put much faith in any specific program being present in the future. Those sorts of deals tend to come and go with the political tide.
Personally I put less and less emphasis on colleges with each passing year of life. Unless your child has aspirations to be a mover shaker or aims for a highly specialized field, just about any accredited bachelor's degree in the right field will work for them, ergo a cheap online/community college will get the job done, and possibly also fast if they're a strong student.
I'd put a modest sum in, perhaps around your number, and then subsidize each child based on their goals. You might nurture a child with strong entrepreneurial aspirations, in which case that 529 is probably not going to help them, whereas 30k in seed money could set them up for great success.
Teaching and nurturing a child early on in life will pay far greater dividends than a college fund ever will in any case. Giving them the tools to advance spectacularly and have a drive to achieve their goals is going to make any other obstacle surmountable.
Yeah, it’s all a game of chance. My feel is that the combination of legislative risk + risk that those funds would not match at all their plans is low-ish enough, lower than it was or I thought it was a few years ago, that it threw me over the fence now. I was firmly against getting 529s until recently (mostly because of my annoyance with scammy colleges, which is most colleges).
Ultimately I fully agree with everything you said. They will build their own projects and ambitions, and our role as parents is to build around to support those ambitions, whatever they are, that is what makes kids successful. In fact, my sudden interest in the 529 is exactly to that end, to be sure they get opportunity if their ambitions happen to be aligned with what 529s are helpful for, while being sure that it is not too harmful if they’re not aligned.
So what if they’re not aligned and they can’t use those funds in meaningful ways for their goals? Well, right now they can transfer it to a Roth; or transfer it to any family member. Those rules can change, but they’re more likely to be that way a while than they were a couple of years ago when those rules weren’t yet a thing; and even if they do change, I feel it is reasonably to expect that there will be similar-ish ways out, hopefully. Otherwise, they can use some of the funds to buy various roughly educational things, like computers and similar expenses. And otherwise, if it’s really terribly unaligned and the law changed so much that those funds are locked as heck, there’s always the possibility to cut our losses, and take them out paying the 10% penalty; but hopefully that won’t be needed, who knows.
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