Just had a baby- need to start saving for college

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Just had a baby- need to start saving for college

Postby NDLeary7 » Thu Jul 25, 2013 11:58 am

Hello all,

My wife and I just had our first baby and now comes the daunting challenge of saving for college. Does anyone on the board have advice for how I should start this process? Is putting money in a 529 the standard procedure?

One of my concerns is, in essence, saving too much for college and not receiving as much financial aid as possible. If I am diligent and put aside significant money for my child's college, won't the financial aid formula say that our family contribution will be larger than if I didn't save as much? Could setting aside too much remove the possibility of financial aid? Is there a "sweet spot" that I should try to save to so that I have enough to pay for college, but also still get a decent financial aid package?

Thank you in advice for any comments/advice.
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Re: Just had a baby- need to start saving for college

Postby Grt2bOutdoors » Thu Jul 25, 2013 12:13 pm

NDLeary7 wrote:Hello all,

My wife and I just had our first baby and now comes the daunting challenge of saving for college. Does anyone on the board have advice for how I should start this process? Is putting money in a 529 the standard procedure?

One of my concerns is, in essence, saving too much for college and not receiving as much financial aid as possible. If I am diligent and put aside significant money for my child's college, won't the financial aid formula say that our family contribution will be larger than if I didn't save as much? Could setting aside too much remove the possibility of financial aid? Is there a "sweet spot" that I should try to save to so that I have enough to pay for college, but also still get a decent financial aid package?

Thank you in advice for any comments/advice.


Congratulations! :sharebeer Have a will, life insurance in place?

A 529 plan will allow your money to grow tax-free until used for school, however there is no guarantee of growth.
If you are diligent in saving money today, that is one less dollar in potential loans needed tomorrow. Financial aid, for all intents and purposes is a loan. A scholarship or grant is free money that usually does not require one to pay it back. If your intent is to lessen or eliminate the burden of carrying debt on your child, then saving is your best known option. I'd rather have more in a combination of 529 and taxable accounts, then less if possible. I would target 4 years of public state university costs in your home state (including room and board if local commuting is out of the question). A decent financial aid package? - well that is contigent on how well your future student does academically, the size of the selected school's financial pot from which they can award dollars, your income/assets, etc. Control the things you can today - that is mainly savings and taking care of your child, all else is pretty much up in the air until a later date in time.
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Re: Just had a baby- need to start saving for college

Postby Garco » Thu Jul 25, 2013 12:15 pm

Not to answer all of your questions, but above all I encourage you to save early and systematically.

My kids went through college when 529 plans weren't yet quite established. So I won't speak to those. We used plain old savings accounts, supplemented by gifted EE bonds from the grandparents. They graduated without any loan overhang.

A couple of things to keep in mind.

Money saved/invested in your name is treated differently than money saved in your children's name in calculating financial aid. In general, save in parents' name. Here's a quick reference, but you should study up on this point. http://www.axa-equitable.com/plan/educa ... -name.html

Most financial aid comes in the form of loans rather than direct cash payments and scholarships.

The cost of a college education can be enormous, especially at private colleges but even at many public ones. My kids each attended a private college, got no financial aid, and it cost us about $130,000 for each one in late 1990's early 2000's -- including, tuition, housing, travel, and other items. Costs at the same colleges today would probably be over $200,000 each. What will they be in 18 years? Not a pretty thing to contemplate. But you do have to think about long-term cost increases owing to general inflation as well as the specific inflation of college costs.

Don't factor prospects for graduate school costs into your planning now. Too many variables to contemplate. Had my older one gone to PhD program, I told him "if you're really good, you will get full financial aid in fellowships and assistantships." Had he chosen to go for law or MBA or MD, that's a different matter; but those are very specific career areas, with their own financial possibilities and burdens.
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Re: Just had a baby- need to start saving for college

Postby YttriumNitrate » Thu Jul 25, 2013 12:23 pm

NDLeary7 wrote:My wife and I just had our first baby and now comes the daunting challenge of saving for college. Does anyone on the board have advice for how I should start this process?... Is there a "sweet spot" that I should try to save to so that I have enough to pay for college, but also still get a decent financial aid package?


Having two in college at the same time has a pretty big impact on the FAFSA calculations, so if you're planning on more kids think about getting started right away. :D
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Re: Just had a baby- need to start saving for college

Postby ThatGuy » Thu Jul 25, 2013 12:32 pm

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Re: Just had a baby- need to start saving for college

Postby Grt2bOutdoors » Thu Jul 25, 2013 12:53 pm



That's offensive to those who serve and have served. Just what are you insinuating? that veterans seek to become disabled to have tuition payments waived? :annoyed
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Re: Just had a baby- need to start saving for college

Postby BolderBoy » Thu Jul 25, 2013 1:02 pm


Looks like it is for dependents of disabled vets.

This was interesting: "Have a parent who is a disabled veteran (0% or more disabled);"

I didn't know there was a disability classification which included zero.
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Re: Just had a baby- need to start saving for college

Postby tludwig23 » Thu Jul 25, 2013 1:06 pm

Grt2bOutdoors wrote:


That's offensive to those who serve and have served. Just what are you insinuating? that veterans seek to become disabled to have tuition payments waived? :annoyed


Luckily, the rules state,

•Have a parent who is a disabled veteran (0% or more disabled); or...

Since you can be 0% disabled, which, if I remember math correctly, means not disabled at all, you only need have a parent who is a veteran. And you need to be a California resident.

Another option would be to send your kid to one of our fine military academies. They're free--well, free of tuition anyway.
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Re: Just had a baby- need to start saving for college

Postby puissant » Thu Jul 25, 2013 1:18 pm

I am no expert on this -- although perhaps I should be -- but I believe many (not all) recommend making to take advantage of 401K / IRA opportunities first. Doing so has a few advantages. First, you have to pay for your retirement first. You are the only one who is going to pay for it. Second, those assets are not considered under federal financial aid rules, so you don't want to have too much money in a 529 and not enough in a 401k. Further, you can borrow from the 401K for college costs if you need, although there is a risk of you need to change jobs (or they are changed for you) of having to pay that money back earlier than you intended. IRAs I believe allow distributions for college expenses, so these can be a good option.

Finally, if you are ahead of the game on retirement funding, you can slow down contributions during the heavy college expense years if need be.

529s have their place, but they are limited to education costs (so you don't want to significantly over contribute) and you have limited investment opportunities and limited. I believe some plans have also been criticized for fees.

I would not take anything I wrote at face value, its only some loose reading I've done, but some things to consider.
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Re: Just had a baby- need to start saving for college

Postby ThatGuy » Thu Jul 25, 2013 1:22 pm

Grt2bOutdoors wrote:That's offensive to those who serve and have served. Just what are you insinuating? that veterans seek to become disabled to have tuition payments waived? :annoyed


I happen to be a disabled vet (40%, USMC). Since there seems to be a number of military members that find their way to this site, my intent was to make them aware of a rarely used benefit.

WRT to the 0% rating, look at it as a 10 point scale. You get rated 0%, 10%, etc up to 100% for each issue. When you have multiple issues, say 0%, 0%, 10%, 70%, they have a chart which takes these individual issues into account and gives an overall rating of x%, which is your compensation rate.
Last edited by ThatGuy on Thu Jul 25, 2013 1:25 pm, edited 1 time in total.
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Re: Just had a baby- need to start saving for college

Postby Hikes_With_Dogs » Thu Jul 25, 2013 1:24 pm

Just some thoughts, as the appropriate manner to save for a child's college is both family and state specific.

What state are you in? Most (all?) states allow you now to invest in ANY state's 529, so look around and see which one might appeal to you.

When I lived in a state with income tax, I could write up to 8k a year off my state's income tax if I invested in their 529. So free money was a motivator for me.

Now I live in a state that has the credit based system and no income tax. So I have decided now just to save money in a separate after-tax account for my child. I decided not to do the state's 529 because hopefully my child will receive scholarships, etc. and I don't want any "extra" money locked into a 529 (though I could save it for my grandchildren or something). We also have 0 hope of any financial aid due to income and assets. And I dislike the credit based system my state offers. So we are just doing it "on our own" though this is not a common choice.
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Re: Just had a baby- need to start saving for college

Postby C8H18Engineer » Thu Jul 25, 2013 1:28 pm

The Wiki here has a pretty good overview. Take a look:

http://www.bogleheads.org/wiki/Category:College_Savings
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Re: Just had a baby- need to start saving for college

Postby technovelist » Thu Jul 25, 2013 1:53 pm

I agree on saving for retirement first. Remember, student loans are easier to get than "retirement loans". :D
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Re: Just had a baby- need to start saving for college

Postby letsgobobby » Thu Jul 25, 2013 10:01 pm

NDLeary7 wrote:Hello all,

My wife and I just had our first baby and now comes the daunting challenge of saving for college. Does anyone on the board have advice for how I should start this process? Is putting money in a 529 the standard procedure?

One of my concerns is, in essence, saving too much for college and not receiving as much financial aid as possible. If I am diligent and put aside significant money for my child's college, won't the financial aid formula say that our family contribution will be larger than if I didn't save as much? Could setting aside too much remove the possibility of financial aid? Is there a "sweet spot" that I should try to save to so that I have enough to pay for college, but also still get a decent financial aid package?

Thank you in advice for any comments/advice.

If you don't save for college, in order to increase your financial aid eligibility, what would you do with the money?
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Re: Just had a baby- need to start saving for college

Postby NOLA » Thu Jul 25, 2013 10:19 pm

First of all congrats, we just had a baby girl a few months ago and its amazing being a parent.

I'm in the process of looking into 529s as well. As a poster mentioned earlier, they have been sort of expensive before, but many of them are getting better. An article was posted not too long ago and it was a pretty good read. However, 401k's (especially matching) and IRA's should most likely be used first. My 401k has some crazy expensive fees (2%), so I contribute to get the match, then my IRA and then probably use the 529.

http://www.hcplive.com/physicians-money ... ntry-Dahle

Good luck.
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Re: Just had a baby- need to start saving for college

Postby Watty » Thu Jul 25, 2013 10:51 pm

technovelist wrote:I agree on saving for retirement first. Remember, student loans are easier to get than "retirement loans". :D



+1 on that.

You also have to remember that when the kids are in college you will likely be cutting back on retirement savings for a few years then so that more of your current income can be used to pay college bills. It is not uncommon for people cut their retirement savings back then to just be enough to get the employer match to a 401k while they have kids in college. If you don't already have a lot of retirement savings then that could be a problem.
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Re: Just had a baby- need to start saving for college

Postby kenyan » Fri Jul 26, 2013 12:06 am

NDLeary7 wrote:Hello all,

My wife and I just had our first baby and now comes the daunting challenge of saving for college. Does anyone on the board have advice for how I should start this process? Is putting money in a 529 the standard procedure?

One of my concerns is, in essence, saving too much for college and not receiving as much financial aid as possible. If I am diligent and put aside significant money for my child's college, won't the financial aid formula say that our family contribution will be larger than if I didn't save as much? Could setting aside too much remove the possibility of financial aid? Is there a "sweet spot" that I should try to save to so that I have enough to pay for college, but also still get a decent financial aid package?

Thank you in advice for any comments/advice.


Saving too much is probably not a concern unless you're a high income family. Savings in a 529 plan count just as much toward your EFC (expected financial contribution) in today's FAFSA as other liquid parental assets such as savings accounts and taxable investments. The EFC from these assets is quite small (5% sticks in my head but I haven't read up on it recently). EFC is zero when sheltered in areas such as IRAs, 401k plans, and home equity, but those are all more difficult (and/or less desirable) to tap for tuition payments.

The one "sweet spot" to mention is that you probably want to make sure you will be paying something toward tuition - a few thousand dollars per year at least. That way, you receive income tax credits. Aside from that, save as much as you feel comfortable. Naturally, all of these things may well change in the next 18 years.
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Re: Just had a baby- need to start saving for college

Postby dickenjb » Fri Jul 26, 2013 7:28 am

Watty wrote:
technovelist wrote:I agree on saving for retirement first. Remember, student loans are easier to get than "retirement loans". :D



+1 on that.

You also have to remember that when the kids are in college you will likely be cutting back on retirement savings for a few years then so that more of your current income can be used to pay college bills. It is not uncommon for people cut their retirement savings back then to just be enough to get the employer match to a 401k while they have kids in college. If you don't already have a lot of retirement savings then that could be a problem.


+2

Don't start a 529 until you are maxing out 401(K) and IRA's and still can save more.
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Re: Just had a baby- need to start saving for college

Postby MGBGTV8 » Fri Jul 26, 2013 4:24 pm

Own state 529 is a good bet IF you get a state tax break on contributions AND it is a reasonably well managed plan. Kiplingers had a state-by-state rating of each plan, e.g. use this plan even if you're in another state; use this plan if it is your state; if this is your state consider another plan.

Don't overlook the independent 529 plans, especially if you're in a state that doesn't offer a tax break.
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Re: Just had a baby- need to start saving for college

Postby Tortoise Banker » Fri Jul 26, 2013 5:37 pm

I looked up the 529 plan in my state (Hawaii)--> www.hi529.com

I was glad to see that Vanguard is the fund company offering the 529, but noticed the expense ratio is 0.75%. It's lower than many other funds, but roughly 5 times the ER of Vanguard funds I invest in...

My wife and I don't yet max our 401k/IRAs, so when we have kids (hopefully in 2 years or so) we'll make our retirement accounts our priority.

We'll probably toss $150/month or so into the 529 plan as an incentive for our kids to go to school...ideally they'll know we've been saving for school for their whole life, and that'll make them want to go! :)
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Re: Just had a baby- need to start saving for college

Postby grabiner » Fri Jul 26, 2013 11:06 pm

Tortoise Banker wrote:I looked up the 529 plan in my state (Hawaii)--> http://www.hi529.com

I was glad to see that Vanguard is the fund company offering the 529, but noticed the expense ratio is 0.75%. It's lower than many other funds, but roughly 5 times the ER of Vanguard funds I invest in...


You can use any state's 529 plan, although some states give tax advantages for residents.

Hawaii 529 Plan on our wiki says that there is no HI tax benefit, so you might as well use the much cheaper New York 529 Plan
NY plan, currently the lowest cost, which is also a Vanguard plan.
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Re: Just had a baby- need to start saving for college

Postby Luke Duke » Mon Jul 29, 2013 11:18 am

BolderBoy wrote:

Looks like it is for dependents of disabled vets.

This was interesting: "Have a parent who is a disabled veteran (0% or more disabled);"

I didn't know there was a disability classification which included zero.



tludwig23 wrote:Luckily, the rules state,

•Have a parent who is a disabled veteran (0% or more disabled); or...

Since you can be 0% disabled, which, if I remember math correctly, means not disabled at all, you only need have a parent who is a veteran. And you need to be a California resident.

Another option would be to send your kid to one of our fine military academies. They're free--well, free of tuition anyway.


A friend of mine is classified as 0% disabled. In his case, he injured his back while in the Army. He went through physical therapy and his back is fine now. Getting the 0% disabled classification makes the Army responsible for future medical care on his back if it is a result of the original injury. He can also have the % increase if his injuries cause problems later. If he wasn't classified as 0% disabled before he was discharged then he wouldn't be eligible for this.
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Re: Just had a baby- need to start saving for college

Postby MathWizard » Tue Jul 30, 2013 8:40 am

Consider a ROTH IRA. When you have a yound family it can do triple duty:

You can use withdraw contributions tax/penalty free for any reason, so:

When you are young, a ROTH can be a large part of your Emergency Fund.
It can be a college savings vehicle (using just contributions for no tax or penalty), and
if you don't use it for college, you can use it for retirement.

I've found so far that suspending ROTH contributions for my wife and I ($12K) allows me
the extra funds without me having to withdraw ROTH contributions. If all continues to
go well, it will be there for me in retirement.

If things go really bad (e.g. job loss & unable to find work) before my kids get out of college,
then within a year they would be able to get substantial financial aid, then I can go ahead
and use the ROTH as an EF.
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Re: Just had a baby- need to start saving for college

Postby Hub » Tue Jul 30, 2013 10:03 am

I agree with the college savings being a lower priority than my own retirement, and I also share concerns about over-saving in one of these college plans. I also live in a no income tax state so I get no advantage from a 529. Thusly I decided to start off with maxing an ESA starting from the 1st year of my kid's life. It's a mere $2000 per year and can be used on primary private school tuition and computers and such prior to college in addition to college expenses.

I figure maxing this every year and investing it as I choose in low cost Schwab funds will get me a solid start with plans to tax flow the rest once I get there.

Caveats in my situation include that I'll not be planning to fund a private college education, and there's an excellent chance that grandparents will be very helpful when the day comes to pay for college.
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Re: Just had a baby- need to start saving for college

Postby danwhite77 » Tue Jul 30, 2013 10:18 am

Utah's 529 is consistently ranked the best or or near the top of just about every list of 529s. Utah uses Vanguard, of course.

I, myself, use Nevada because of the breadth of Vanguard offerings. Nevada is Vanguard's 529 plan.
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Re: Just had a baby- need to start saving for college

Postby NDLeary7 » Wed Aug 07, 2013 10:30 am

Thank you very much for all of your valuable information. I live in Maryland, which offers a tax benefit for participating in their 529 plan, so I likely will put some money here. I have placed the prioirty on retirement savings, as I put the maximum amount of money into my (and my wife's) IRA each year and we put 10% of our salaries into our 403 (B) plans.

Again, thank you for the advice!
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Re: Just had a baby- need to start saving for college

Postby supersharpie » Wed Aug 07, 2013 10:40 am

You should wait until you have maxed out your 403(b)s before starting a 529. You can always borrow from your IRA or 403(b) to help your child with tuition and, who knows, your child may earn a full ride!
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Re: Just had a baby- need to start saving for college

Postby wander » Wed Aug 07, 2013 8:33 pm

supersharpie wrote:You should wait until you have maxed out your 403(b)s before starting a 529. You can always borrow from your IRA or 403(b) to help your child with tuition and, who knows, your child may earn a full ride!

+1
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Re: Just had a baby- need to start saving for college

Postby Big Worm » Wed Aug 07, 2013 8:46 pm

I am a big fan of 529's. I have one for each of my kids (both <4 years old). I get a state tax break on them which is nice. The funds are invested in Vanguard funds which have done very well so far. Vanguard has low, medium and high risk funds that all adjust over time as the child ages. It's what I call Ronco investing, set it and forget it!

I do have the fortune to be able to max out my 401K and contribute $5500 or whatever to a backdoor Roth.

I'm not telling my kids I am saving for college for them, that way they can bust their butts to get a scholarship!
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Re: Just had a baby- need to start saving for college

Postby JW Nearly Retired » Wed Aug 07, 2013 8:58 pm

NDLeary7 wrote:Hello all,

My wife and I just had our first baby and now comes the daunting challenge of saving for college. Does anyone on the board have advice for how I should start this process? Is putting money in a 529 the standard procedure?

One of my concerns is, in essence, saving too much for college and not receiving as much financial aid as possible. If I am diligent and put aside significant money for my child's college, won't the financial aid formula say that our family contribution will be larger than if I didn't save as much? Could setting aside too much remove the possibility of financial aid? Is there a "sweet spot" that I should try to save to so that I have enough to pay for college, but also still get a decent financial aid package?

Thank you in advice for any comments/advice.

Doubt very much there is a sweet spot. IMO, if you have plenty of taxable savings or 529 savings to pay for college then there won't be any financial aid. Why aid those who can get by without it? The only assets that don't reduce financial aid are homes and retirement accounts. Even that may not last forever, but IMO your best bet is to save in your IRAs/401ks now, and when college comes you can stop that saving and pay-as-you-go (or borrow if you must).

I should disclose I say this from the viewpoint of having 2 kids who got by with no financial aid whatsoever. Total waste of time filling out the fafsa.
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Re: Just had a baby- need to start saving for college

Postby RadAudit » Thu Aug 08, 2013 8:13 am

There could be an alternative to saving more. One could investigate the possibility of the four year education costing less.

One approach may be to consider going to community college for the first two years and then transferring to a four year college for the final two years.

Another approach could be taking AP courses in high school and getting college credit before the child graduates.

There are a lot of different approaches and some how it'll work out.

But the suggestion to save for your retirement first is very sound.

Good luck.
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Re: Just had a baby- need to start saving for college

Postby livesoft » Thu Aug 08, 2013 9:29 am

NDLeary7 wrote:...I have placed the prioirty on retirement savings, as I put the maximum amount of money into my (and my wife's) IRA each year and we put 10% of our salaries into our 403 (B) plans.

If 10% of salaries is $35,000 total a year, then that's great, but what I would say and perhaps others, is that since retirement comes first one should put the maximum possible into the 403(b) plans before considering 529 plans. Since the contribution limit is usually $17,500 per person ($23,000 if age 50 by year-end), that means $17,500 + $17,500 for a working couple before making any contribution to a 529 plan. Maybe an exception can be made for a small amount to capture a state-tax benefit.

If one is used to making a $35,000 plus $11,000 annual contributions to retirement plans, then when college time comes along, one can cut back and easily afford to cash-flow from paychecks most of the annual college bills.

Basically, I don't see any need to start saving for college just because one just had a baby. And I have a kid in college now and a high school senior.
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Re: Just had a baby- need to start saving for college

Postby Grt2bOutdoors » Thu Aug 08, 2013 10:43 am

livesoft wrote:
NDLeary7 wrote:...I have placed the prioirty on retirement savings, as I put the maximum amount of money into my (and my wife's) IRA each year and we put 10% of our salaries into our 403 (B) plans.

If 10% of salaries is $35,000 total a year, then that's great, but what I would say and perhaps others, is that since retirement comes first one should put the maximum possible into the 403(b) plans before considering 529 plans. Since the contribution limit is usually $17,500 per person ($23,000 if age 50 by year-end), that means $17,500 + $17,500 for a working couple before making any contribution to a 529 plan. Maybe an exception can be made for a small amount to capture a state-tax benefit.

If one is used to making a $35,000 plus $11,000 annual contributions to retirement plans, then when college time comes along, one can cut back and easily afford to cash-flow from paychecks most of the annual college bills.

Basically, I don't see any need to start saving for college just because one just had a baby. And I have a kid in college now and a high school senior.


That only works if a)you have the ability to save that much in any given year and b)you are still gainfully employed when your child(ren) are due to attend school. The problem the current/last recession showed were folks source of education funding dried up just at the time they needed it most: they were either RIF'd, HELOCs were cut and/or education savings were inappropriately allocated such that the value of the accounts plummeted to a value far below what was expected. The solution was student loans, but that isn't the panacea most thought it would be when as the front page of this Monday's WSJ indicates - many people are unable to pay back their student loans because they are unable to find employment or are underemployed. Saving from pre-birth to day one or year 1-2 can reduce the overall level of potential stress as funding time approaches. It's not that much different than saving for retirement or any other major purchase - save early and often, the sooner you start the easier it becomes, wait until your 50 to start saving and it can become nearly impossible or very difficult to reach your goals.
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Re: Just had a baby- need to start saving for college

Postby livesoft » Thu Aug 08, 2013 3:05 pm

If folks lost their jobs just as child was going to college, I can see where a family with everything in 403(b)s and Roths would get more financial aid than the same family with bloated 529 plans.

Yes, saving from birth is a good way to transfer wealth from oneself to a college. :)
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Re: Just had a baby- need to start saving for college

Postby bru » Thu Aug 08, 2013 3:12 pm

NDLeary7 wrote:Hello all,

My wife and I just had our first baby and now comes the daunting challenge of saving for college. Does anyone on the board have advice for how I should start this process? Is putting money in a 529 the standard procedure?


Like in the last week or two? Relax...well at least as much as possible with a new baby. Do your research and then jump in. Waiting a few months isn't going to make or break your child's college fund. If your state offers a tax deduction for it's 529 plan (and it is a decent one) you can use that to help your timing.
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Re: Just had a baby- need to start saving for college

Postby supersharpie » Fri Aug 09, 2013 7:54 am

Grt2bOutdoors wrote:
livesoft wrote:
NDLeary7 wrote:...I have placed the prioirty on retirement savings, as I put the maximum amount of money into my (and my wife's) IRA each year and we put 10% of our salaries into our 403 (B) plans.

If 10% of salaries is $35,000 total a year, then that's great, but what I would say and perhaps others, is that since retirement comes first one should put the maximum possible into the 403(b) plans before considering 529 plans. Since the contribution limit is usually $17,500 per person ($23,000 if age 50 by year-end), that means $17,500 + $17,500 for a working couple before making any contribution to a 529 plan. Maybe an exception can be made for a small amount to capture a state-tax benefit.

If one is used to making a $35,000 plus $11,000 annual contributions to retirement plans, then when college time comes along, one can cut back and easily afford to cash-flow from paychecks most of the annual college bills.

Basically, I don't see any need to start saving for college just because one just had a baby. And I have a kid in college now and a high school senior.


That only works if a)you have the ability to save that much in any given year and b)you are still gainfully employed when your child(ren) are due to attend school. The problem the current/last recession showed were folks source of education funding dried up just at the time they needed it most: they were either RIF'd, HELOCs were cut and/or education savings were inappropriately allocated such that the value of the accounts plummeted to a value far below what was expected. The solution was student loans, but that isn't the panacea most thought it would be when as the front page of this Monday's WSJ indicates - many people are unable to pay back their student loans because they are unable to find employment or are underemployed. Saving from pre-birth to day one or year 1-2 can reduce the overall level of potential stress as funding time approaches. It's not that much different than saving for retirement or any other major purchase - save early and often, the sooner you start the easier it becomes, wait until your 50 to start saving and it can become nearly impossible or very difficult to reach your goals.


What you are saying does not make much sense. A person is just as likely to inappropriately allocate funds in a 529 as they are in a 403(b). Therefore, despite saving from "pre-birth" they may find that the value of their 529 "far below what they expected," forcing them to take on student loans.

The bottom line is that, assuming investment in identicle funds, every dollar saved in a 403(b) will accomplish the same amount of tax deferred growth as a dollar saved in a 529. The difference is that there is much greater flexibility for the use of funds in a 403(b) than there is in a 529.

I have yet to hear a cogent argument why financially, as opposed to emotionally, it makes sense to contribute to a 529 BEFORE maxing out all tax advantaged retirement accounts.
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Re: Just had a baby- need to start saving for college

Postby Grt2bOutdoors » Fri Aug 09, 2013 8:08 am

supersharpie wrote:
Grt2bOutdoors wrote:
livesoft wrote:
NDLeary7 wrote:...I have placed the prioirty on retirement savings, as I put the maximum amount of money into my (and my wife's) IRA each year and we put 10% of our salaries into our 403 (B) plans.

If 10% of salaries is $35,000 total a year, then that's great, but what I would say and perhaps others, is that since retirement comes first one should put the maximum possible into the 403(b) plans before considering 529 plans. Since the contribution limit is usually $17,500 per person ($23,000 if age 50 by year-end), that means $17,500 + $17,500 for a working couple before making any contribution to a 529 plan. Maybe an exception can be made for a small amount to capture a state-tax benefit.

If one is used to making a $35,000 plus $11,000 annual contributions to retirement plans, then when college time comes along, one can cut back and easily afford to cash-flow from paychecks most of the annual college bills.

Basically, I don't see any need to start saving for college just because one just had a baby. And I have a kid in college now and a high school senior.


That only works if a)you have the ability to save that much in any given year and b)you are still gainfully employed when your child(ren) are due to attend school. The problem the current/last recession showed were folks source of education funding dried up just at the time they needed it most: they were either RIF'd, HELOCs were cut and/or education savings were inappropriately allocated such that the value of the accounts plummeted to a value far below what was expected. The solution was student loans, but that isn't the panacea most thought it would be when as the front page of this Monday's WSJ indicates - many people are unable to pay back their student loans because they are unable to find employment or are underemployed. Saving from pre-birth to day one or year 1-2 can reduce the overall level of potential stress as funding time approaches. It's not that much different than saving for retirement or any other major purchase - save early and often, the sooner you start the easier it becomes, wait until your 50 to start saving and it can become nearly impossible or very difficult to reach your goals.


What you are saying does not make much sense. A person is just as likely to inappropriately allocate funds in a 529 as they are in a 403(b). Therefore, despite saving from "pre-birth" they may find that the value of their 529 "far below what they expected," forcing them to take on student loans.What part are'nt you getting? What proof do you have that you can make such a statement "a person is just as likely to inappropriately allocate funds in a 529 plan as they are in a 403(b)"? If it's your opinion, that's one thing, but if you've read the papers there are plenty of articles about people having experienced what I wrote above. Use an age-based allocation plan, your chances of that happening are less. Or create your own savings plan - savings bond, savings accounts, CD's, zero coupon bonds, some equity index funds - there are many roads to Dublin.

The bottom line is that, assuming investment in identicle funds, every dollar saved in a 403(b) will accomplish the same amount of tax deferred growth as a dollar saved in a 529. The difference is that there is much greater flexibility for the use of funds in a 403(b) than there is in a 529.
We're not talking about retirement - we're talking about college savings as the OP asked about. My response was to Livesoft which in an ideal situation would have the OP being able to save 46K per year for retirement - in the real world you'd be lucky to have a couple saving half of that.

I have yet to hear a cogent argument why financially, as opposed to emotionally, it makes sense to contribute to a 529 BEFORE maxing out all tax advantaged retirement accounts.

As I stated above, my response was to Livesoft, not to you and not to defend the funding of a 529 plan BEFORE saving for retirement or other pressing goals.
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