How Much To Save For College?

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davebo
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How Much To Save For College?

Post by davebo »

For now, I'm in a good position and can fully-fund my retirement accounts. ROTH IRA, 401k for my wife/myself, and my wife has a pension.

And I'm plugging along on the 529 savings. I have a 2 year old son and have $25k saved for him. It also appears (not confirmed yet) that we have 2 more on the way.

I've heard Ric Edelman say to just save $50k as fast as you can for each kid and leave it at that. Others I have heard say save 2 years community college plus 2 years state school. Then if you're in a position, you can help them out more later.

Couple questions though....

1) I know there is no right answer, but what is everyone doing?
2) Does it make sense to load up more heavily on the first child, given that you can always transfer money to the other children if they don't use it?
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Post by JV »

I was also perplexed with this issue but am keeping it simple. I contribute $10,000 ($5,000 for each of my two kids), the max allowed for the generous state tax deduction for a couple, and will continue that until they enter college (I hope). Per a basic savings calculator, I'd have about $150K when the youngest starts college. I feel that's good enough. I'm not overthinking this.
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Post by Grt2bOutdoors »

Here's another thread, where the same question was asked:


http://www.bogleheads.org/forum/viewtop ... highlight=
ted123
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Post by ted123 »

Our kids are 5 and 2. We contribute $8000 per child per year to our 529 plans, which maximizes our state tax deduction (actually, we contribute slightly more due to rounding up our automatic monthly contributions).

As a complete coincidence, that's pretty close to the number I think we need to get to pay in-state tuition a good state college.

Beyond that, we save as much as we can in our taxable accounts. As we get closer to college and have more information about our retirement expectations, we'll determine whether we can and should pay more for college.
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Post by DblDoc »

4 years of in state tuition purchased through the WA GET program - one of our best investments by far this decade! Also have some money in 529 plans. If DS wants to go out of state/private or more than 4 years he will have to figure out how to pay for it (We would help but he doesn't know that :wink: )

DD
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Post by SamGamgee »

Mine are 4 and 1. I'm not saving specifically for college. What's the point? My 401k is doing pretty well. I save what I can, and when the time comes to talk about college, I'll make a decision based on my financial position at that time.
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Post by pfrank »

I have two children, 1 and 2. We live in Massachusetts where they offer a pre-paid tuition program. It is open to residents and non-residents. You are basically buying bonds.

The plan allows you lock in today's tuition rates. So, if a school costs $10,000 per year and you put in $1,000, it will cover 10% of the tuition costs in 2026 when my first child starts school. Our goal is to save for 4 years of college at the most expensive state university for each child (about $12,000 per year tuition and fees). This program only covers tuition and fees. Earnings are exempt from federal and state taxes. We have been putting in $3,000 per year per child. If you don't go to one of the 80 participating schools you get your original money + CPI back.

We also have 529 plans through Utah's program for both children as well. We have this slated for room, board, books, etc....everything else the pre-paid plan doesn't cover. All of our children's gift money from birthday's, Christmas, etc. goes into these accounts.
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Post by letsgobobby »

DblDoc wrote:4 years of in state tuition purchased through the WA GET program - one of our best investments by far this decade! Also have some money in 529 plans. If DS wants to go out of state/private or more than 4 years he will have to figure out how to pay for it (We would help but he doesn't know that :wink: )

DD
agree 100% on the WA GET - what a deal it has been so far.

We bought each child 5 years of credits at or before they were born. For child 1 we bought 500 units at $35,000 in 2007. For child 2 we bought 500 units at $38,000 in 2009. Those same units would currently cost $117x500 = $58,500. If only a broadly diversified portfolio had done nearly as well!

Additionally we save $9000 per child per year in the Utah 529, so child 1 has $30k and child 2 has $12k.

Our goal is to be able to pay full tuition, room, board, books, fees, expenses - the whole shebang - for any private school in the country, in case they get into a great one. We expect this will cost roughly $500,000 per child in future dollars. If they go somewhere less expensive they can use the excess toward grad school.

This is for us a cultural expectation. It is what our parents did for us, and we are glad to do (and to be able to do) the same for our children.
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Post by Opponent Process »

a half million per child seems reasonable.
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Post by Grt2bOutdoors »

Opponent Process wrote:a half million per child seems reasonable.
In what world? That leads one to believe only the upper crust of America will be attending school, while the masses will slave away.
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Post by letsgobobby »

GRT2BOUTDOORS wrote:
Opponent Process wrote:a half million per child seems reasonable.
In what world? That leads one to believe only the upper crust of America will be attending school, while the masses will slave away.
No, the upper crust will pay full sticker price while the masses will receive grants, loans, tuition reductions, etc.

The reality is the upper middle class and wealthy subsidize many college attendees. Tutition costs are like health care costs - very few people pay sticker price, so the sticker price has to continue to increase at absurd rates. In education the few that do pay cash help subsidize those who get discounts.

My alma mater gives free tuition, room, and board to all those with family incomes < $60k; and free tuition to all those with family incomes < $100k. Those earning in the $100k+ range get a variable amount of financial aid. Guess where that leaves those making $200k+?
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Post by Dagwood »

I would just keep doing what you are doing. $25k saved for a two year old demonstrates that you have the right saving discipline certainly.

As for saying more about how much you should or can save, there is too much future uncertainty other than to make sure you are comfortable that you are doing the best you can do for your kids -- "uncertainty" here refers to everything from the cost of the institution your child(ren) will attend, to your future income and savings ability (promotions, setbacks), and other things which are simply unknowable. While it is good to plan, you can also make yourself crazy trying to know the future.
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Post by bluestar »

letsgobobby wrote:
DblDoc wrote:4 years of in state tuition purchased through the WA GET program - one of our best investments by far this decade! Also have some money in 529 plans. If DS wants to go out of state/private or more than 4 years he will have to figure out how to pay for it (We would help but he doesn't know that :wink: )

DD
agree 100% on the WA GET - what a deal it has been so far.

We bought each child 5 years of credits at or before they were born. For child 1 we bought 500 units at $35,000 in 2007. For child 2 we bought 500 units at $38,000 in 2009. Those same units would currently cost $117x500 = $58,500. If only a broadly diversified portfolio had done nearly as well!

Additionally we save $9000 per child per year in the Utah 529, so child 1 has $30k and child 2 has $12k.

Our goal is to be able to pay full tuition, room, board, books, fees, expenses - the whole shebang - for any private school in the country, in case they get into a great one. We expect this will cost roughly $500,000 per child in future dollars. If they go somewhere less expensive they can use the excess toward grad school.

This is for us a cultural expectation. It is what our parents did for us, and we are glad to do (and to be able to do) the same for our children.
Since reading your post I've been trying to figure out if tuition in Washington has gone up by the same 67% as the WA GET units over the last few years, because there seems to be a disconnect. It looks to me that the program is trying to make future purchasers make up for investment losses in recent years so the program remains solvent (self-sufficient). From their website the current payout price of one unit is $76 while current purchase price is $117. That is quite a large front-end load. Perhaps they are anticipating some huge future tuition increases, but I'm not so sure that this program is as good of deal as it was a few years back.

Regardless, congrats on fully funding your children's education...
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Post by letsgobobby »

you are absolutely correct - the "load" when we bought was about 15% - reasonable, I thought considering the then current environement*. Now, the load is ridiculous and WA GET is not a good deal, in my opinion.

I use the WA GET as the inflation-indexed fixed portion of my children's college savings, and the rest is in equity indexes.

*those factors included:
- Univ of WA being a very good public university with relatively cheap in-state tuition likely to rise over time;
- a historical rate of tuition increase of 7%, more during periods of economic weakness and state budget deficits and stock market declines;
- rumblings in the legislature about letting tuition rise by 14-15% per year (this did in fact subsequently occur);
- the fact that WA GET is constitutionally backed by the full faith and credit of the state; that it is fully transferable even out of state to any accredited eligible institution.
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Post by DblDoc »

letsgobobby wrote:you are absolutely correct - the "load" when we bought was about 15% - reasonable, I thought considering the then current environement*. Now, the load is ridiculous and WA GET is not a good deal, in my opinion.

I use the WA GET as the inflation-indexed fixed portion of my children's college savings, and the rest is in equity indexes.

*those factors included:
- Univ of WA being a very good public university with relatively cheap in-state tuition likely to rise over time;
- a historical rate of tuition increase of 7%, more during periods of economic weakness and state budget deficits and stock market declines;
- rumblings in the legislature about letting tuition rise by 14-15% per year (this did in fact subsequently occur);
- the fact that WA GET is constitutionally backed by the full faith and credit of the state; that it is fully transferable even out of state to any accredited eligible institution.
I agree. Probably still a reasonable deal for a newborn/very young child. With a 15yo sophomore this fall I would not buy more.

DD
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Post by Bob's not my name »

letsgobobby wrote:The reality is the upper middle class and wealthy subsidize many college attendees. Tuition costs are like health care costs - very few people pay sticker price, so the sticker price has to continue to increase at absurd rates. In education the few that do pay cash help subsidize those who get discounts.
Amen. At my kids' school 75% get financial aid, and (based on my own anecdotal observation of my kids' friends) about 15% are wealthy. That leaves 10% for whom paying full tuition is a significant burden. We've paid about $350,000 so far. By the time all three are through grad school we'll be at about $800,000, assuming some help from research assistantships. Very happy to pay for my kids' educational experience, just wish it was a little less. I try to be polite to the students on aid who call regularly asking for donations to the endowment. Once, they literally called when I was writing the tuition check.
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Post by kidsgone »

I don't post here too often but would like to comment on this subject. The $'s for college being saved and spent by the good folks on this board seem very high to me. What is wrong with scholarships: academic and athletic? How about miltary academy schools? What about ROTC? Isn't taking advantage of such free money a good boglehead approach (OK, a 5 year service requirement means not exactly "free" money) or am I missing something here? Our 2 kids: both went to public high schools; West Pt for one, zero costs for r/b/t, graduated in 4 yrs; the 2nd said no to a military school, went to a state public school, $22k total costs for r/b/t for 4 yrs (today, about $28k) Grad schools (Ivy) they paid for themselves with an ROI within 3 yrs. Total costs to wife and me: $22k.
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Post by letsgobobby »

kidsgone wrote:I don't post here too often but would like to comment on this subject. The $'s for college being saved and spent by the good folks on this board seem very high to me. What is wrong with scholarships: academic and athletic? How about miltary academy schools? What about ROTC? Isn't taking advantage of such free money a good boglehead approach (OK, a 5 year service requirement means not exactly "free" money) or am I missing something here? Our 2 kids: both went to public high schools; West Pt for one, zero costs for r/b/t, graduated in 4 yrs; the 2nd said no to a military school, went to a state public school, $22k total costs for r/b/t for 4 yrs (today, about $28k) Grad schools (Ivy) they paid for themselves with an ROI within 3 yrs. Total costs to wife and me: $22k.
As I wrote, for me and my wife this is culturally nonnegotiable. If our children want to go to West Point, and get into West Point, or get academic full rides to a great state school, terrific. However, it would be irresponsible to bank on that happening. By making certain lifestyle choices (modest home, old car, etc), we can afford to both save adequately for retirement and for our children to go to any good 4 year unviersity they are accepted at (I say good because I'm not paying for them to go somewhere lousy).

Anything extra they can use toward grad school. Beyond that, maybe I'll go back to school. 529 money is highly flexible.
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Post by livesoft »

For wealthy folks, what else are they going to spend their money on? They have enough stuff, so they might as well pay for a child's full-ride at a good university. You can't take it with you.
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Post by indexfundfan »

SamGamgee wrote:Mine are 4 and 1. I'm not saving specifically for college. What's the point? My 401k is doing pretty well. I save what I can, and when the time comes to talk about college, I'll make a decision based on my financial position at that time.
The advantage is that the 529 basically behaves like a large Roth IRA. All qualified withdrawals are tax-free. If you know that you want to pay for college, then saving in the 529 is better than in the taxable account (you have to pay capital gains tax on withdrawal) or in a tax-deferred account.
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Get

Post by Dudette »

The WA GET is not the deal it used to be. There are planned 17% tution increases per year and there is a year or two disconnect between the GET account and what is paid out.

I would try and find a comparable prepaid plan that has increased tution much and get that or buy the DFA 529.

I bought 4 years of the GET and am putting away 5K or so per year in the DFA 529 account. Planning on fully paid in state or out of state private school which would need additional money. Would not go above fully paid in state tution unless you have some strong preference for some school. Invest remaining amounts in tax efficient fund that can be used if needed.
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Post by White Coat Investor »

Some people are getting really carried away on this thread. What happened to the kid taking out a loan or two and working a little during the year and hard during the summers?

My kids will probably only get $20 or $30K from me, and they'll appreciate it. If they can get a full-ride scholarship I don't expect they'll need loans. Current 4 year tuition at the most expensive state school in my state is $26K. And you can share an apartment for less than $500 a month, including utilities.

Most people retire on less than a half million.

I paid off my entire loan burden this week from undergraduate and med school. It had finally started accruing interest after 17 years. It was $5K. The rest I earned with tuition scholarships, service scholarships (aka military), summer jobs, and school time employment.

What do you teach your kids when you pick up a $500K tab for them? That money grows on trees? What are the odds that they can then return the favor for the next generation? Assuming you're putting kids through college about halfway through your retirement savings plan, and say you've got 4 kids...you'd need to be putting much more toward their college than your own retirement!

I guess if you make a half million a year it wouldn't be too bad, but I think it is important to remember Buffett's savings plan for his kids- "They'll have enough to do anything they want, but not enough to do nothing."
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Post by TJAJ9 »

I agree. ^

Don't worry about saving so much money for college. Once your kids get older, you can teach them about school loans, financial aid, scholarships and grants. That's how most people are able to attend college in the real world.
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Post by letsgobobby »

EmergDoc wrote:
What do you teach your kids when you pick up a $500K tab for them? That money grows on trees? What are the odds that they can then return the favor for the next generation?
Obviously this will vary a lot depending on circumstances. In my case, my parents paid for everything. I went to a top 5 university in the early 1990s. Then they helped somewhat (not a lot) with medical school. Along the way they bought me two used cars, took me on some nice vacations, paid for me to fly home on holidays, and made sure I had pocket money to boot. The result was that by age 30 I was head of my department at our hospital, debt free except for a modest mortgage, and well on my way toward saving for college for my own kids. My parents' gifts to me have kept on giving in many ways and have hardly led to a cavalier attitude about money.

You might think my circumstances an aberration, but in fact you don't know that. We can all think of cases where people were 'given' money and things turned out badly (think lottery winners). And we can all think of people who were 'given' money and did wonderful things with their lives.

Contrast my situation to a coworker, a fellow physician. She's in her 40s. Had to pay for everything herself. Now she has about $200,000 in student loan debt. What lesson do you think she learned that I didn't? I don't know, but I'm glad I didn't have to learn it!

Anyway, what do I teach my kids if I tell them I didn't save for their college expenses because I really needed that 80 day cruise around the world? Or a Porsche? Or a 5000 square foot house? I'd rather transmit to them my family's multi-generational belief that education is paramount and that learning and knowledge are worthy pursuits that parents enable in their children. That's worth good money to me.
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Post by WiscSooner »

letsgobobby wrote: Anyway, what do I teach my kids if I tell them I didn't save for their college expenses because I really needed that 80 day cruise around the world? Or a Porsche? Or a 5000 square foot house? I'd rather transmit to them my family's multi-generational belief that education is paramount and that learning and knowledge are worthy pursuits that parents enable in their children. That's worth good money to me.
+1.
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Post by White Coat Investor »

letsgobobby wrote:
Anyway, what do I teach my kids if I tell them I didn't save for their college expenses because I really needed that 80 day cruise around the world? Or a Porsche? Or a 5000 square foot house? I'd rather transmit to them my family's multi-generational belief that education is paramount and that learning and knowledge are worthy pursuits that parents enable in their children. That's worth good money to me.
That is a good point, but $500K is still ridiculous.
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Post by Opponent Process »

this just comes back to the other thread on having kids. once you decide to have kids you begin the process of denying yourself until you are completely extinguished. it's the natural process once you choose that road.
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Post by letsgobobby »

EmergDoc wrote:
letsgobobby wrote:
Anyway, what do I teach my kids if I tell them I didn't save for their college expenses because I really needed that 80 day cruise around the world? Or a Porsche? Or a 5000 square foot house? I'd rather transmit to them my family's multi-generational belief that education is paramount and that learning and knowledge are worthy pursuits that parents enable in their children. That's worth good money to me.
That is a good point, but $500K is still ridiculous.
Depends on your income and other assets, probably. For us $500kx2 kids over 20 years is significant, and requires lifestyle modification, but is not going to put us in the poorhouse. I agree that retirement savings and debt repayment possibly including mortgage must come first for the vast majority.

Opponent PRocess - good point, as well. We went to Chicago in May and I took my 3 year old daughter to the American Girl store. I was forewarned and psychologically armed but still floored at the absurdity of the experience. We didn't buy her anything - we must have been the only parents of a girl in the store without a $100 doll in hand - we had told our daughter in advance the store was a "museum" and that we were only going to look and not touch or buy. She accepted that. She probably won't accept that when she's 13.

I do love being able to provide for my family. It means much more to me than providing for myself, which is no challenge because all I need is a backpack, a pair of running shoes, a computer, and a library. I could entertain myself for 10 years with those 4 pieces of equipment alone.
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Post by bmelikia »

I don't know the right answer. . .I do the best I can. . .

I'm currently 25 years old. I'm not married and have no kids but one day things will change and I want to be best prepared. I have been saving $100 every 2 weeks. I know it's not a lot but I figure it's a pretty good start for my nonexistent children. . .maybe down the road I'll need to ramp up my savings in that department.

I was kind of thinking that maybe if I have $10,000 saved up for each kid prior to their birth then I should be headed in the right direction. . .
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Post by Bob's not my name »

EmergDoc wrote:
letsgobobby wrote:
Anyway, what do I teach my kids if I tell them I didn't save for their college expenses because I really needed that 80 day cruise around the world? Or a Porsche? Or a 5000 square foot house? I'd rather transmit to them my family's multi-generational belief that education is paramount and that learning and knowledge are worthy pursuits that parents enable in their children. That's worth good money to me.
That is a good point, but $500K is still ridiculous.
I think we can all agree on that, but letsgobobby's original point is that a minority actually pay full price, and subsidize the rest. My point is that upper middle class savers are particularly burdened with paying for everybody else. An AGI around $170,000 means you are phasing out of the AOC, phasing out of the Making Work Pay credit, phasing out of Roth eligibility, and phasing out of financial aid eligibility. Depending on how many kids you have in school, your effective marginal rate can approach 100%.

$500k is hard to hit at today's prices. A top undergrad education is $220k, and top law school is $180k. Furthermore, that doesn't mean $400k from the parents. My kids have earned about $12,000 per summer in good years (they've made less when working for the public good or in extraordinary overseas opportunities), and they averaged about $11,000 in scholarships, and the law student will make about $25,000 next summer. Helping them pay for a great education isn't the same as buying them a sportscar or taking them to Disneyland. They understand the value of money, they work hard and live exceptionally cheaply, and they study hard and are straight A students at the toughest schools in the country. They've never owned cars or lived in a McMansion or had season tickets to see thugs-on-drugs.
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Post by White Coat Investor »

I'm starting to feel a little on the cheap side now. Perhaps I ought to be planning to save up more for my kids.

This will vary for everyone of course, but what, in your estimation, would be a good amount to save up? Let's phrase it in terms of % of your annual salary as the total for all of your kids (obviously, if you have one you can afford to save more for that kid than if you have four.)

I seems to me that 1X salary is pretty darn good. Especially considering most people will retire at something like 10X salary a decade afterward.
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Post by SamB »

Opponent Process wrote:a half million per child seems reasonable.
This may not be a joke. I thought I had college costs covered, and then my daughter had to go out of state to study in a particular field. My original estimates were too low by a factor of three. Basically, have a plan B.

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Post by Petrocelli »

My son is in a private college. With room board, books, alcohol, plane tickets, condoms, tattoos, tattoo removal, and rust protection, it runs about $55,000 a year.

Plan accordingly.
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Post by mda42 »

EmergDoc wrote:I'm starting to feel a little on the cheap side now. Perhaps I ought to be planning to save up more for my kids.
I don't have any specific suggestions, but I will point out that if you have significant wealth, your kids will be at a severe disadvantage when they try to get financial aid and perhaps loans, so they might have a much harder time putting themselves through school. Schools are smart and there's not much a kid can do in terms of declaring themselves an independent as far as I know. This may not be much of an issue if they go to a state school. But what if they get into somewhere like MIT? A lot of the people that intend to send their kids to state schools make exceptions for truly great schools like MIT. Of course, with 4 kids, it gets more complicated...
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Post by livesoft »

Here's how college saving worked for us: Max out retirement plans for 25 years. That means we are used to saving $56K a year in recent years. Next year, no reason to contribute to retirement plans, since we have enough because we started early. So that frees up $56K a year for college. No saving for college needed.
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Post by White Coat Investor »

livesoft wrote:Here's how college saving worked for us: Max out retirement plans for 25 years. That means we are used to saving $56K a year in recent years. Next year, no reason to contribute to retirement plans, since we have enough because we started early. So that frees up $56K a year for college. No saving for college needed.
Of course, that does mean you have to keep working, rather than be retired right now. But at least you have the choice of either retiring in 4 years and paying for college, or retiring now and not paying for college.
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Post by Grt2bOutdoors »

mda42 wrote:
EmergDoc wrote:I'm starting to feel a little on the cheap side now. Perhaps I ought to be planning to save up more for my kids.
I don't have any specific suggestions, but I will point out that if you have significant wealth, your kids will be at a severe disadvantage when they try to get financial aid and perhaps loans, so they might have a much harder time putting themselves through school. Schools are smart and there's not much a kid can do in terms of declaring themselves an independent as far as I know. This may not be much of an issue if they go to a state school. But what if they get into somewhere like MIT? A lot of the people that intend to send their kids to state schools make exceptions for truly great schools like MIT. Of course, with 4 kids, it gets more complicated...
There is no "one size fits all" answer. Unless your offspring have exceptional academic talent, there is no need to shell out $50K plus for undergrad, when they could go to a "good" school costing less. I'd rather save and send them to a great graduate level program than a "name school" undergrad program and find themselves in a sea of millions with nothing to differentiate themselves other than "I went to fru-fru university, paid through the nose and came out with the same knowledge as my peers who attended State U of XX and paid a very Boglehead like price of Y".

@Lets Go Bobby: It's absurd to infer that going to a Top 10 or Top 5 program was the main reason why you were promoted to head of a department. It is more likely you were promoted because you are a qualified, diligent, hard-working and knowledgable physcian.
Last edited by Grt2bOutdoors on Thu Jul 08, 2010 9:56 pm, edited 1 time in total.
Grt2bOutdoors
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Post by Grt2bOutdoors »

livesoft wrote:Here's how college saving worked for us: Max out retirement plans for 25 years. That means we are used to saving $56K a year in recent years. Next year, no reason to contribute to retirement plans, since we have enough because we started early. So that frees up $56K a year for college. No saving for college needed.
How can you save 56K a year for retirement? Besides a 401k where you can contribute 6k more after age 50, and 6k in an IRA?
Grt2bOutdoors
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Post by Grt2bOutdoors »

mda42 wrote:
EmergDoc wrote:I'm starting to feel a little on the cheap side now. Perhaps I ought to be planning to save up more for my kids.
I don't have any specific suggestions, but I will point out that if you have significant wealth, your kids will be at a severe disadvantage when they try to get financial aid and perhaps loans, so they might have a much harder time putting themselves through school. Schools are smart and there's not much a kid can do in terms of declaring themselves an independent as far as I know. This may not be much of an issue if they go to a state school. But what if they get into somewhere like MIT? A lot of the people that intend to send their kids to state schools make exceptions for truly great schools like MIT. Of course, with 4 kids, it gets more complicated...

Are you sure about that? I have a friend whose accountant suggested he pay off his mortgage with the cash he had in the bank, so as to avoid having to pay full freight for his daughter when she reachs college in 4 years. Not to mention, he plans on playing the "minority" card to maximize his aid/scholarship package.

It sounds like fraud to me, but I'm sure it's pretty rampant out there.
livesoft
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Post by livesoft »

EmergDoc wrote:Of course, that does mean you have to keep working, rather than be retired right now. But at least you have the choice of either retiring in 4 years and paying for college, or retiring now and not paying for college.
Not true. It just means that my spouse keeps working, but not me. :)
mda42
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Post by mda42 »

GRT2BOUTDOORS wrote:
mda42 wrote:
EmergDoc wrote:I'm starting to feel a little on the cheap side now. Perhaps I ought to be planning to save up more for my kids.
I don't have any specific suggestions, but I will point out that if you have significant wealth, your kids will be at a severe disadvantage when they try to get financial aid and perhaps loans, so they might have a much harder time putting themselves through school. Schools are smart and there's not much a kid can do in terms of declaring themselves an independent as far as I know. This may not be much of an issue if they go to a state school. But what if they get into somewhere like MIT? A lot of the people that intend to send their kids to state schools make exceptions for truly great schools like MIT. Of course, with 4 kids, it gets more complicated...

Are you sure about that? I have a friend whose accountant suggested he pay off his mortgage with the cash he had in the bank, so as to avoid having to pay full freight for his daughter when she reachs college in 4 years. Not to mention, he plans on playing the "minority" card to maximize his aid/scholarship package.

It sounds like fraud to me, but I'm sure it's pretty rampant out there.
I don't know all the rules. Maybe they vary from school to school, and home equity may get some special treatment. But I remember talking to someone that said that he was screwed because his parents refused to pay for college and he could not get aid because he was still considered a dependent no matter what he did. Maybe he was making it up. But it does seem like if you could just declare yourself independent to avoid paying full price and to get more aid, then everyone would do this. Then the colleges would not be able to price discrimitate effectively, which they seem to be doing.

Considering the huge fees that colleges charge, we should probably all be talking to CPA and accountants that know the ins and outs of it. I mean, being ignorant of the rules could be very costly.
dharrythomas
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Post by dharrythomas »

On the federal forms, home equity is not considered an asset and mortgage payments are not backed out. Paying off your house will help somewhat, though I never saw any benefit, never qualified for grants and only once did the kids qualify for a small subsidized loan. By the way, while contributions to retirement accounts are added back into calculations of income for ability to pay, retirement accounts are like home equity and are not considered as assets available.

I told mine that they'd have to take the 'universal level' of student loans and go to a state school, work some, and we'd cover the difference. No Greeks, no new car, no bling, ect.

My oldest had a partial scholarship, took out the loans, worked in the school library, and managed pretty well. It still cost us ~$10K a year. My youngest put together a set of scholarships that would have covered everything if the community foundation hadn't reniged when the market crashed. I think between her job, her other scholarship, and the fact that I'll qualify for the post 9/11 GI bill 100% this year will get her through undergraduate school next year with no debt.

I wanted them to have some 'buy-in' and to have an understanding of the costs early. It also allowed me to get a house paid off and have a pretty good retirement fund. Kids turned out pretty good also. #1 got married and is going back to school and #2 wants to do grad school immediately. She'll have some of my VA benefits left and we'll help her figure out the rest though it will be mostly work and loans. We'll help some because her undergrad cost us so little.

This is like most other issues with kids. We're mostly guessing and hoping it turns out OK. The amounts that some of the posters are talking about saving were out of reach for us, so I came up with a method that I thought would work and wouldn't kill us.

Good Luck

Harry
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Post by letsgobobby »

GRT2BOUTDOORS wrote:
@Lets Go Bobby: It's absurd to infer that going to a Top 10 or Top 5 program was the main reason why you were promoted to head of a department. It is more likely you were promoted because you are a qualified, diligent, hard-working and knowledgable physcian.
You are right - I was being vague and made my point obtusely. What I was implying is that having the opportunity to go to an elite private university offers incredible advantages and costs an incredible amount of money. That my parents were willing and able to foot that bill in its entirety has freed up my time to do other things - like work, study, and otherwise advance my own family's financial well-being, my career, etc. I haven't had to spend money or time in the last 15 years paying off massive student loans, paying off old car loans, paying off two mortgages, moonlighting at 3 jobs, etc. I've been able to focus on work, my family, and my interests. By not having to worry so much about money, my life has been easier. Our retirement is on track and we've been able to save for our kids' college. Again, contrast that with my colleague who often lives paycheck to paycheck just because it cost her so much to get where she's currently at. That kind of lesson imparts nothing but a whole lot of stress.
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Post by Grt2bOutdoors »

letsgobobby wrote:
GRT2BOUTDOORS wrote:
@Lets Go Bobby: It's absurd to infer that going to a Top 10 or Top 5 program was the main reason why you were promoted to head of a department. It is more likely you were promoted because you are a qualified, diligent, hard-working and knowledgable physcian.
You are right - I was being vague and made my point obtusely. What I was implying is that having the opportunity to go to an elite private university offers incredible advantages and costs an incredible amount of money. That my parents were willing and able to foot that bill in its entirety has freed up my time to do other things - like work, study, and otherwise advance my own family's financial well-being, my career, etc. I haven't had to spend money or time in the last 15 years paying off massive student loans, paying off old car loans, paying off two mortgages, moonlighting at 3 jobs, etc. I've been able to focus on work, my family, and my interests. By not having to worry so much about money, my life has been easier. Our retirement is on track and we've been able to save for our kids' college. Again, contrast that with my colleague who often lives paycheck to paycheck just because it cost her so much to get where she's currently at. That kind of lesson imparts nothing but a whole lot of stress.
Agreed - exiting school without a ball and chain improves your life considerably. My parents believed the same way your family did - education is paramount, hence they did the best they could with what little they had. I didn't want to burden them with me going to an expensive school - so I took the backdoor approach, went to a local but good college, worked during school, took on a nominal amount of loans and went to a well-known grad school The gamble paid off, my life has been much easier than ex-friends of mine who partied during school, took on huge loans and exited with nothing but a degree in some field for which there is not much economic reward, a beer belly and animoisity towards me for having succeeded.
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Post by Dagwood »

letsgobobby wrote:
You are right - I was being vague and made my point obtusely. What I was implying is that having the opportunity to go to an elite private university offers incredible advantages and costs an incredible amount of money. That my parents were willing and able to foot that bill in its entirety has freed up my time to do other things - like work, study, and otherwise advance my own family's financial well-being, my career, etc. I haven't had to spend money or time in the last 15 years paying off massive student loans, paying off old car loans, paying off two mortgages, moonlighting at 3 jobs, etc. I've been able to focus on work, my family, and my interests. By not having to worry so much about money, my life has been easier. Our retirement is on track and we've been able to save for our kids' college. Again, contrast that with my colleague who often lives paycheck to paycheck just because it cost her so much to get where she's currently at. That kind of lesson imparts nothing but a whole lot of stress.
While at some level the above exchange is a fair point, at another level this line of thinking completely overlooks that difficulties, obstacles, and stress will often if not always be unavoidable during the course of your life. If you have never dealt with hard choices or decisions, or otherwise learned, experientially, how to go without, it will be more difficult to do so when you have such a rude experience in your adult years and have no experience on how to cope with such things.

I want to do the best that we can do for our kids. And we are actively saving for education. But if you shelter them completely, and do not let them take on some of the responsibility, and stress, associated with the choices that they make, they will not become what I call "seasoned" adults. They will just grow older. That's harsh sounding, I know, but it is what it is and my experience, and that of most people I know, is that it is true. Doesn't mean your kids have to kill their dinner, but someone footing the bill for everything is not the real world.

Moreover, I think trying to put a number on any of these things like "how much to save for college" is a bit of a fool's errand. The determination is subject to too many subjective factors to be put into a formula, and doing so is, in my opinion, a bad idea because it lends to the illusion that there is precision of some sort where there really is none. You do what you are comfortable with, consistent with your values, experiences, and resources, and that result should allow you to sleep well at night. If you are constantly discussing that figure -- is it too big or too little -- that probably tells you what you need to know in terms of whether you are in your own personal "sweet" spot.

And fwiw, my wife and I both paid for our educations, undergrad and grad. We borrowed a lot and paid it all off in five years. We are both probably considered "successful" by most people. Sheltering was not necessary, and I would not trade my experience for anything, as I think it has been invaluable to us.
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Post by allsop »

GRT2BOUTDOORS wrote:
livesoft wrote:Here's how college saving worked for us: Max out retirement plans for 25 years. That means we are used to saving $56K a year in recent years. Next year, no reason to contribute to retirement plans, since we have enough because we started early. So that frees up $56K a year for college. No saving for college needed.
How can you save 56K a year for retirement? Besides a 401k where you can contribute 6k more after age 50, and 6k in an IRA?
Taxable investments that are intended for retirement?
Grt2bOutdoors
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Post by Grt2bOutdoors »

allsop wrote:
GRT2BOUTDOORS wrote:
livesoft wrote:Here's how college saving worked for us: Max out retirement plans for 25 years. That means we are used to saving $56K a year in recent years. Next year, no reason to contribute to retirement plans, since we have enough because we started early. So that frees up $56K a year for college. No saving for college needed.
How can you save 56K a year for retirement? Besides a 401k where you can contribute 6k more after age 50, and 6k in an IRA?
Taxable investments that are intended for retirement?
That or an annuity?
dbr
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Post by dbr »

allsop wrote:
GRT2BOUTDOORS wrote:
livesoft wrote:Here's how college saving worked for us: Max out retirement plans for 25 years. That means we are used to saving $56K a year in recent years. Next year, no reason to contribute to retirement plans, since we have enough because we started early. So that frees up $56K a year for college. No saving for college needed.
How can you save 56K a year for retirement? Besides a 401k where you can contribute 6k more after age 50, and 6k in an IRA?
Taxable investments that are intended for retirement?
Sure, you save in taxable accounts. Labeling various tax code procedures as "pensions" or "retirement" or "annuity" does not mean one is forbidden to save otherwise. Remember that tax efficient equity investments in taxable accounts are effectively tax deferred to retirement as far as capital gain is concerned and also offer opportunities to offset other income through tax loss harvesting.

Livesoft is correct that if your income is high enough you can save for retirement first and fund college expenses from income or nearly so. It is possible that if your income is not that high you cannot afford to save that much for college or to fund college from income.

I have known many parents that have simply stated that college will be paid for to the tune of the local resident or even local community college cost and after that it is up to what the qualification for financial aid and self funding by the child turns out to be.
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Post by livesoft »

I thought this was obvious since I used the word "we":
$56K = $22K my 401(k) + $22K my spouse's 401(k) + $6K my Roth IRA + $6K my spouse's Roth IRA.
dbr
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Post by dbr »

livesoft wrote:I thought this was obvious since I used the word "we":
$56K = $22K my 401(k) + $22K my spouse's 401(k) + $6K my Roth IRA + $6K my spouse's Roth IRA.
But I doubt you would disagree that taxable saving is hardly excluded if tax deferred space is unavailable -- for example, the same situation for a single investor.
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