How much do you plan to save in your 529 plan?

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Topic Author
hmw
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How much do you plan to save in your 529 plan?

Post by hmw »

Dear fellow Bogleheads,

I am wondering how much do you plan to save for your 529 plan?

We have a 3-year old son. I am thinking of opening a 529 for him with a lump sum deposit of 25k, then a monthly contribution until he is 18. I also plan to retire in about 15 years. He is our only child. I would like to fully fund his undergrad education. Obviously it's hard to say at this point whether he will attend a grad school or any professional school. The cost of 4-year education at an Ivy is going to be a lot more expensive than a state school. If you have the resources, do you try to save for the cost of a 4 year private college, or a 4-year in state tuition? I know there is a 10% tax penalty if the money in a 529 plan is taken out and not used for post-secondary education. We have not other kids so we can't transfer the excess money to a younger child.

If I contribute 1k monthly with an initial deposit of 25k, there will be about 320k in 15 years assuming a 5% rate of return after inflation. Is that too much?

Thanks for your thoughts.
Theotree
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Re: How much do you plan to save in your 529 plan?

Post by Theotree »

Here's what I would have done if I was as smart as you and started a 529 for my kids when they were little: start with what you think you would pay annually for college at today's rates and assume an annual increase each year, times 4. I would put the minimal amount that you think you can get away with paying for tuition, room, board, books, etc. (I.e. state school) in the 529 and the rest somewhere else.

There's no way to know if your child will go to an Ivy or to a state school, but most of the private colleges are currently in the 50k range. At my freshman's private college, the financial aid office told me that they have increased tuition, board, etc. by approximately 4% a year. Will that be how much they raise tuition every year going forward or if this is the general trend for private schools, who knows, but with a little math I came up with a rough estimate of what I think I can expect to pay for the rest of my kids.

But since we didn't do what you are doing we'll be eating Ramen for almost a decade...
livesoft
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Re: How much do you plan to save in your 529 plan?

Post by livesoft »

This is an easy question to answer because we are done saving in a 529 plan. We saved about $60,000 which is enough for 3 full years of college tuition, fees, room, and board for my youngest in college. Education credits from the IRS will help pay for the remaining amount.

OTOH, we saved for retirement first, so I was able to retire while my kids are in college. They get no financial aid. So my retirement accounts can not only be used to pay for my living expenses, but also for college expenses. Therefore, I suggest saving for retirement in a big way before contributing to any 529 plans. That means maximum legal contributions to 401(k), 403(b), Roth, etc., along with putting money in taxable accounts and doing the tax-loss harvesting thing.

(And in case folks say that the above college expenses are inexpensive, let me note that my oldest graduated from a college that costs almost $60,000 a year all in.)
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broadreach
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Re: How much do you plan to save in your 529 plan?

Post by broadreach »

Provided you have taken care of your own retirement funding first, 529 plans are great ways to finance higher education. The contribution amounts you list are very good. Consider:

-Private college costs right now can run upwards of $60K/year for tuition, room&board, fees
-College cost "inflation" has been exceeding CPI inflation and has been running 5-6% per year
-If private college costs are in the $250-300K range now for 4 years, you can expect ~$500K 15 years from now

Even though you have only one child, the $ in the 529 could be used for graduate school if not exhausted for undergraduate. Whether saving for in-state public institution or private may depend on the strength of your home state's public institutions. If you front-load the 529 funding now, you can always back off later if investment performance exceeds your assumptions. With 15 years to go, time is still on your side.
dickenjb
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Re: How much do you plan to save in your 529 plan?

Post by dickenjb »

I have two boys and I did not put a dollar into 529's until I had maxed out 401(k) at $17,500 + $5500, his and hers Roths, and a top hat plan that allowed me to defer 100% of my bonus each year before taxes (ca $50K).

Once I had extra over and above our retirement savings, I put the PA state limit for deductibility into 529's - that was $13K at first and then $14K.

I amassed about $150K in each plan. Older boy is going to University of Pittsburgh and his account will be nearly depleted. I continue to slide $14K a year into his plan with professional school in mind, or it can go to the younger son or grandkids.

Younger son has $150K and is a senior in HS. Will know shortly if that is sufficient as he has his eye on Duke, U of Mich, etc.
Topic Author
hmw
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Re: How much do you plan to save in your 529 plan?

Post by hmw »

Thanks for your replies.

I don't have a lot of tax advantaged space for retirement savings. 401k and back door Roth only. So the bulk of my retirement saving will be in taxable accounts.

From my research so far, a private college will cost 50k to 60k a year. A public in state will cost maybe 30k? I currently live in TX and U of Texas Austin tuition will be about 10k a year plus living expenses. Other potential choices will be some Canadian universities such as U of Toronto, McGill or UBC where the tuition are similar to or less than that of an instate college here as my son has dual citizenships.

I think I will do what broadreach suggested. I will front load the 529 funding now and dial back later if I don't think my son will be getting into an expensive Ivy. I personally don't think it's worthwhile paying for a "2nd tier' expensive private college if a flagship public college is available.
dhodson
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Re: How much do you plan to save in your 529 plan?

Post by dhodson »

The only wrinkle I see is your retirement plans. The reason I say that is I assume your income would be a lot less when your child goes to college. I normally think playing the aid game is a bad idea and doesn't work out but id be considering putting my money into non or less likely to count assets like my house/mortgage at this point. There are lots of problems with this approach primarily being that you assume what doesn't count today wont count in the future.

Now if you know for sure that you are going to pay for your kids education and you don't care much about the aid (which is almost always loans anyway) then id frontload it like you are thinking. That's just me. I'd put away enough to cover 4 years at a non state but not necessarily elite or overly expensive school.
Theotree
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Re: How much do you plan to save in your 529 plan?

Post by Theotree »

hmw wrote:I personally don't think it's worthwhile paying for a "2nd tier' expensive private college if a flagship public college is available.
Agreed.

Eldest felt differently after the athletic official visit to our best in state.

So we could have forced the issue with the very real possibility of a flunk out or agree to the favored school. Many long discussions later we agreed to the child's first choice and not ours. It was not an easy decision.

The point is, things will probably look different 15 years from now for you.
Topic Author
hmw
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Re: How much do you plan to save in your 529 plan?

Post by hmw »

dhodson wrote:The only wrinkle I see is your retirement plans. The reason I say that is I assume your income would be a lot less when your child goes to college. I normally think playing the aid game is a bad idea and doesn't work out but id be considering putting my money into non or less likely to count assets like my house/mortgage at this point. There are lots of problems with this approach primarily being that you assume what doesn't count today wont count in the future.

Now if you know for sure that you are going to pay for your kids education and you don't care much about the aid (which is almost always loans anyway) then id frontload it like you are thinking. That's just me. I'd put away enough to cover 4 years at a non state but not necessarily elite or overly expensive school.

I am fortunate that I am making a very good income so I don't anticipate that my son will get any financial aid. I plan to retire at age 55 and will see a drop in income after I retire. But I doubt it will make my son eligible for financial aid. I live in Tx and the housing cost is very reasonable compared to some high COL areas. I anticipate that my house will be fully paid off in 15 years, and will be about 10 to 155 of my net worth at that time.
Topic Author
hmw
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Re: How much do you plan to save in your 529 plan?

Post by hmw »

Theotree wrote:
hmw wrote:I personally don't think it's worthwhile paying for a "2nd tier' expensive private college if a flagship public college is available.
Agreed.

Eldest felt differently after the athletic official visit to our best in state.

So we could have forced the issue with the very real possibility of a flunk out or agree to the favored school. Many long discussions later we agreed to the child's first choice and not ours. It was not an easy decision.

The point is, things will probably look different 15 years from now for you.
That's a good point. I can actually imagine that my wife and my mom will be on my son's side when this happens!
ourbrooks
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Re: How much do you plan to save in your 529 plan?

Post by ourbrooks »

hmw wrote:
Theotree wrote:
hmw wrote:I personally don't think it's worthwhile paying for a "2nd tier' expensive private college if a flagship public college is available.
Agreed.

Eldest felt differently after the athletic official visit to our best in state.

So we could have forced the issue with the very real possibility of a flunk out or agree to the favored school. Many long discussions later we agreed to the child's first choice and not ours. It was not an easy decision.

The point is, things will probably look different 15 years from now for you.
That's a good point. I can actually imagine that my wife and my mom will be on my son's side when this happens!
Have you decided yet when your son wants to go to the second tier private school whether you're going to buy him the BMW, the Audi or the Mercedes or whether you'll leave that choice up to him as well? After all, if he is allowed to choose schools based on personal preference, rather than on academic performance, shouldn't he be allowed his choose of vehicle to tool around campus with? And isn't he more likely to stay in school if he has a neat car on campus? :D

Put enough money in the 529 plan to cover a state university. You live in a state with no less than 36 state universities. The best of them is world class, but your child had better have really top board scores and grades to get in. Sorry, but half of children are, in fact, below average, and 93% aren't in the top 7%, which is what is now required to get automatic admission to one of the top Texas schools. Fortunately, other Texas universities are more accommodating. Some of them even give the kind of close supervision that one supposedly pays for in a private university (University of Texas Arlington). Your son can also get a ranching degree or a degree in Trans-Pecos wildlife management (Sul Ross University), neither of which I think any of the Ivy League schools offer.

If you are so moved, you can put other funds in the same place in which you put optional expenditures. Your son is guaranteed to have a good education paid for and, if there's extra, you can pay for graduate school or the down payment on his house. If you son doesn't go to school at all but becomes a plumber, you can spend it on your own vacation. (Well, if he's a plumber, he can probably pay for your vacation, too.)
TDAlmighty
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Re: How much do you plan to save in your 529 plan?

Post by TDAlmighty »

We have a baby less than a year old and opened his 529 last month. We are just pulling money out of cash in-flow to do monthly automatic contributions to 529 -- no lumpsum. Similar to Theotree, I tried to forecast what in-state public undergrad would cost 17 years from now and calculated what steady amount of monthly contributions would get us there (of course making conservative assumptions about returns as well).

I also have also been pleasantly surprised that mentioning to family about contributing to 529 through UGift was warmly received :happy
Grt2bOutdoors
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Re: How much do you plan to save in your 529 plan?

Post by Grt2bOutdoors »

Theotree wrote:
hmw wrote:I personally don't think it's worthwhile paying for a "2nd tier' expensive private college if a flagship public college is available.
Agreed.

Eldest felt differently after the athletic official visit to our best in state.

So we could have forced the issue with the very real possibility of a flunk out or agree to the favored school. Many long discussions later we agreed to the child's first choice and not ours. It was not an easy decision.

The point is, things will probably look different 15 years from now for you.
Can someone define what a "2nd tier expensive private college" is? Names for example?
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Aptenodytes
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Re: How much do you plan to save in your 529 plan?

Post by Aptenodytes »

Grt2bOutdoors wrote:
Can someone define what a "2nd tier expensive private college" is? Names for example?
Well, this is an easy way to offend large numbers of alumni, but here are some examples often considered to fall in this group:

+ Northwestern
+ Middlebury
+ Rice
+ Johns Hopkins
+ Emory
+ Tufts
NorCalDad
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Re: How much do you plan to save in your 529 plan?

Post by NorCalDad »

Grt2bOutdoors wrote:
Theotree wrote:
hmw wrote:I personally don't think it's worthwhile paying for a "2nd tier' expensive private college if a flagship public college is available.
Agreed.

Eldest felt differently after the athletic official visit to our best in state.

So we could have forced the issue with the very real possibility of a flunk out or agree to the favored school. Many long discussions later we agreed to the child's first choice and not ours. It was not an easy decision.

The point is, things will probably look different 15 years from now for you.
Can someone define what a "2nd tier expensive private college" is? Names for example?
I wouldn't dare name names. But my definition would be a private school that offers no better job/grad school prospects than a public school where your child can get in-state tuition. One thing in their favor is that they offer scholarship money for academic performance, while Ivy-level colleges generally provide only need-based aid. Of course, I'm starting to doubt the benefits of the "1st tier expensive private colleges" over a flagship public university, too.

To the OP's question, we haven't started our 529s yet. We make just enough to max out 401ks and Roths, but hopefully will find more money for 529s soon.
Buckeye
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Re: How much do you plan to save in your 529 plan?

Post by Buckeye »

Nothing.

We have never maxed out our retirement savings and probably never will.
Andyrunner
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Re: How much do you plan to save in your 529 plan?

Post by Andyrunner »

Here is my approach.

I invest only $300 a month into my 1 year old daughters 529, plus any gift money from family. Both my wife and I max out our 403bs and we have a strong pension so we should be good for retirement (so far). My plan is to replace my mortgage payments (which will be done in 10-15 years) with investment into my daughters college fund. So I will have 3-8 years of mortgage payments to get a head start on college costs and additional retirement.

On top of that all, current plan is to tell my daughter we will pay for half and she pays half. Once she graduates we will pay her half as a gift (which we wont tell her till after graduation). We want her to have some skin in the game.

Of course, FAFSA, college costs, interest rates, and everything can all change in 17 years.
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Go Blue 99
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Re: How much do you plan to save in your 529 plan?

Post by Go Blue 99 »

We would like to fully cover an in-state public school. We have a newborn and plan on putting in around $5-6k per year, including gifts from grandparents. Unlike many Bogleheads, we don't follow the rule of maxing all retirement space before putting any money into a 529. This is mainly because we are comfortable with our current level of retirement saving.
keystone
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Re: How much do you plan to save in your 529 plan?

Post by keystone »

I don't really have a set amount that I plan to save in my <1 year old son's 529 plan.

Like livesoft, I am making (early) retirement saving a priority, so there isn't really a whole lot left for the 529 plan on a regular basis. By age 6 months, I saved about $1,250 mainly from cashing in credit card rewards. Whenever I scrape together extra money, I will put it in the 529 plan but I don't anticipate making regular contributions.

I have decided that I will fund 100% of my son's in-state tuition and board, which I think is fair. I imagine this will come from a combination of the 529 plan, taxable account and IRA.

My philosophy is that it is better to under fund a 529 plan than over fund. This way you can take advantage of potential tax credits and not risk paying penalties for unused 529 balances.
feh
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Re: How much do you plan to save in your 529 plan?

Post by feh »

Spouse and I decided to provide 3-4 years of the total cost at a very good in-state public school. If he goes somewhere less expensive, that amount could easily pay for 5 years. If he goes somewhere pricey, he'll need to come up with the difference.

Our rationale is that we want to help him, but don't want to fund every dime. He should be aware of the cost, and responsible for part of the funding.

I've seen too many adults that were given everything by their parents and never quite fully mature as a result.
FreemanB
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Re: How much do you plan to save in your 529 plan?

Post by FreemanB »

My daughter is almost 2 years old now, and my wife and I are funding her 529 plan with the goal of saving approximately $200k by age 18. That number was my admittedly rough guestimate of the cost of a very good 4-year public school in our state. As she gets older, we will adjust the contributions based on market conditions(If we're on track to meet our goal) and college costs estimates as she gets closer. I'm not worried about paying 100% of her college out of the fund, but mainly want to have enough in there that any short fall won't be a financial burden.(On us, not her) We are committed to paying for 100% of her undergrad tuition, and likely any post-grad as well.(Although we will exercise common sense about it and set reasonable limits on what we will pay in terms of private vs public, etc)
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FelixTheCat
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Re: How much do you plan to save in your 529 plan?

Post by FelixTheCat »

I suggest looking at Vanguard 529 in a state (Nevada) that is associated with UPromise. http://www.upromise.com/welcome You can get cash back on your purchases and even get their credit card to help contribute to the 529.
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trueblueky
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Re: How much do you plan to save in your 529 plan?

Post by trueblueky »

Plan to pay $4000 of tuition from taxable savings or current income each year to get the $2500 AOC tax credit.

Look at your state's tax rules on 529s. Some will give you a tax break for contributions.
Bacchus01
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Re: How much do you plan to save in your 529 plan?

Post by Bacchus01 »

Interesting question.

Right now we have $60K in 529 plans with a 13, 8, and 5 year old. Wisconsin allows a deduction on $3K of contributions per beneficiary per year, so we put in $3K each for the 3 kids and for my wife and myself. That's a total of $15K/year. We'll move around the funds to support the beneficiary that needs it then after-tax the rest if needed. We will continue to put $3K even after the older ones graduate but then transfer it to the younger ones. So, if I assume that the 5 year old graduates from college in 17 years, we will put in $15K per year for the next 17 years. That's $255K plus the current $60K for $315K. Assuming modest growth of 4% (but not factoring withdrawals) that's about $450K for the 3 of them, or $150K each. Realistically with withdrawals it's probably closer to $125K each.

I expect two things to happen. First, as the oldest goes to college we'll have a better read on the expense and probably adjust the plan appropriately. Second, and conversely, we will likely continue to fund $15K/year for our lifetimes in order to put money away for the education of our kids/grandkids. In fact, we will up it when those days (grandkids) come and will likely be putting away even more provided that the state continues with the tax deductions. This is really the only financial legacy I want to leave to my kids/grandkids is the ability to go to college and do something they truly love without worrying about funding it. The rest of our savings, my wife and I plan to blow every penny!

Oh, our early-retirement investments are well funded. The $15K a year, fortunately for us, is a drop in the bucket. I realize that's not true for many and we are fortunate.
jackholloway
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Re: How much do you plan to save in your 529 plan?

Post by jackholloway »

She has about 40k now with eight years until it starts. We are planning on lump summing at least 70k into the Colorado stable value fund, and might put in the other 70k in a stock index fund 529. Berkeley runs 128k today, so if that is the destination, we would have 60k left for grad school NPV.

We are hopeful that she will instead end up at a top tier school, but the competition is fierce. Still, that 265k would mean coming up with another 80k at the time.

I would love to have the problem of paying taxes and a 10% penalty on the earnings of the 529 because she got substantial scholarships to a top school that fit her outlook and skills.
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hmw
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Re: How much do you plan to save in your 529 plan?

Post by hmw »

jackholloway wrote:She has about 40k now with eight years until it starts. We are planning on lump summing at least 70k into the Colorado stable value fund, and might put in the other 70k in a stock index fund 529. Berkeley runs 128k today, so if that is the destination, we would have 60k left for grad school NPV.

We are hopeful that she will instead end up at a top tier school, but the competition is fierce. Still, that 265k would mean coming up with another 80k at the time.

I would love to have the problem of paying taxes and a 10% penalty on the earnings of the 529 because she got substantial scholarships to a top school that fit her outlook and skills.
I don't believe you will pay a 10% penalty if your kid got scholarships.
jackholloway
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Re: How much do you plan to save in your 529 plan?

Post by jackholloway »

hmw wrote:
jackholloway wrote:She has about 40k now with eight years until it starts. We are planning on lump summing at least 70k into the Colorado stable value fund, and might put in the other 70k in a stock index fund 529. Berkeley runs 128k today, so if that is the destination, we would have 60k left for grad school NPV.

We are hopeful that she will instead end up at a top tier school, but the competition is fierce. Still, that 265k would mean coming up with another 80k at the time.

I would love to have the problem of paying taxes and a 10% penalty on the earnings of the 529 because she got substantial scholarships to a top school that fit her outlook and skills.
I don't believe you will pay a 10% penalty if your kid got scholarships.
Were she to, though, I might withdraw the bulk for non educational purposes eventually. Or leave it to grandchildren.
swaption
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Re: How much do you plan to save in your 529 plan?

Post by swaption »

Aptenodytes wrote:
Grt2bOutdoors wrote:
Can someone define what a "2nd tier expensive private college" is? Names for example?
Well, this is an easy way to offend large numbers of alumni, but here are some examples often considered to fall in this group:

+ Northwestern
+ Middlebury
+ Rice
+ Johns Hopkins
+ Emory
+ Tufts
Interesting list. Not offended, even though I am an alum of the first on your list, but I might have drawn the line lower. I guess my question is what is your first tier, basically Ivy League, MIT, and Stanford? Duke? U of Chicago? What is it about Northwestern, Hopkins, or Tufts that makes it not worth it as compared to say an Ivy League school? Don't get me wrong, I see flaws in the education process as well, but much of that applies across the board here. Is your line based on reputation value or is there something else here?
lhl12
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Re: How much do you plan to save in your 529 plan?

Post by lhl12 »

Aptenodytes wrote:
Grt2bOutdoors wrote:
Can someone define what a "2nd tier expensive private college" is? Names for example?
Well, this is an easy way to offend large numbers of alumni, but here are some examples often considered to fall in this group:

+ Northwestern
+ Middlebury
+ Rice
+ Johns Hopkins
+ Emory
+ Tufts
I'm not sure what methodology produced this list, but one objective method used by outside observers who focus on these things (like me) is Net Endowment Per Student (or "NEPS"). That figure gives a good indication of the internal resources a private school has to devote to its students - whether for program, financial aid, buildings, etc. The larger a school's NEPS, the less it has to make up in tuition and/or contributions and therefore the more selective it can be in its admissions process (i.e by ignoring financial need).

The Gross Endowment for all schools is publicly available. It is published annually by NACUBO (The National Association of College and University Business Officers). You can see this info on Wikipedia.

A school's Net Endowment is simply its Gross Endowment minus its debt. A school's total debt figure isn't as readily available (as most schools with substantial debt try not to publicize the fact) but it can be found on the school's audited financial statements, which are generally available online if you look hard enough. Middlebury, for example, has a Gross Endowment of about $1 billion (which is a figure it publicizes broadly) but it also has about $400 million of debt (which is a figure it tries not to publicize.) So, its Net Endowment is only $600 million. Another school in the same athletic conference - Bowdoin - has roughly an equivalent endowment ($1 billion) but has only $200 million of debt. So, its Net Endowment is $800 million - 33% larger than Middlebury's. Meanwhile, Amherst (also in the same conference) has about a $2 billion endowment, about $400 million of debt, so a Net Endowment of $1.6 billion.

Then, Net Endowment Per Student is simply Net Endowment divided by the number of students at the school. Continuing with the same three schools, Middlebury has 2495 students, so its NEPS is $240,000. Bowdoin has 1795 students, so its NEPS is $446,000 - almost double Middlebury's. Amherst's NEPS is $896,000 - almost double Bowdoin's and almost 4x Middlebury's!

(Aside: NEPS is easy to calculate for smaller liberal arts colleges like Middlebury, Bowdoin and Amherst but can be trickier for large universities with lots of graduate students and/or professional schools, since often some portion of the endowment is specifically dedicated (by the donor) to a narrow use at a professional school. So, for example, only about half of Harvard's $32 billion endowment is for the use of its undergraduates. The other half is dedicated to places like Harvard Medical School, Harvard Law School, Harvard Business School, etc. So, Harvard's undergraduate NEPS is about $16B divided by 6400 students, or $2.5 million/undergraduate. This is a huge number obviously, but it is quite a bit lower than Princeton's, which has a smaller total dollar endowment but a meaningfully larger NEPS for its undergraduates.)

There are many other subjective factors that go into a school's quality. I don't mean to imply that just because Bowdoin has a NEPS that is higher than Middlebury's it is automatically a "better" school, or that Amherst is better still. However I do believe that - all else equal - as higher education comes under increasing cost pressure, those schools with more resources will be able to produce a better program for their students than a comparable school with smaller resources.

PS While I focused on Amherst, Bowdoin and Middlebury, I have no affiliation with any of those institutions, nor am I trying to imply anything about any of them other than the hard numbers quoted above!
ctreada
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Re: How much do you plan to save in your 529 plan?

Post by ctreada »

We have a baseline goal of saving $650/month for our daughter and will do that until she's 18.

Keep in mind a few things about the 529:
1) Not all expenses are covered -- i.e. you can't buy her a condo or car with the proceeds.
2) You *can* take back whatever a child gets in a scholarship (should that happen), and put those proceeds towards unqualified expenses. I think it's taxed however.
3) The money can stay in the 529 even if it isn't used for your child's graduate school, or if you or your spouse get a wild hair and want to return to school.
4) Anyone can put up to $70k into a 529 without any gift tax implications. (5 years x $14k limit on gifts)
5) They can be passed down a generation -- so your beneficiary's children can benefit.
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dbCooperAir
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Re: How much do you plan to save in your 529 plan?

Post by dbCooperAir »

hmw wrote: I don't have a lot of tax advantaged space for retirement savings. 401k and back door Roth only. So the bulk of my retirement saving will be in taxable accounts.
hmw, don't forget about Ibonds if they fit within your IPS in some way. Can also pay for college with Ibonds and get a tax break.

We are blessed and cursed at the same time, have way more tax advantaged space then we fill! So no 529's!
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The529guy
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Re: How much do you plan to save in your 529 plan?

Post by The529guy »

swaption wrote:
Aptenodytes wrote:
Grt2bOutdoors wrote:
Can someone define what a "2nd tier expensive private college" is? Names for example?
Well, this is an easy way to offend large numbers of alumni, but here are some examples often considered to fall in this group:

+ Northwestern
+ Middlebury
+ Rice
+ Johns Hopkins
+ Emory
+ Tufts
Interesting list. Not offended, even though I am an alum of the first on your list, but I might have drawn the line lower. I guess my question is what is your first tier, basically Ivy League, MIT, and Stanford? Duke? U of Chicago? What is it about Northwestern, Hopkins, or Tufts that makes it not worth it as compared to say an Ivy League school? Don't get me wrong, I see flaws in the education process as well, but much of that applies across the board here. Is your line based on reputation value or is there something else here?
I agree with swaption. When it comes to so-called "second tier" private schools, I think geography plays an important role. Growing up in the Northeast, my recollection is that Northwestern and Johns Hopkins were perceived as much more prestigious brands than the others mentioned in the original list above. I'm sure such a list would vary in different parts of the country.

Also, this 26-second clip from 30 Rock is relevant: https://www.youtube.com/watch?v=91VUQGDpN9Y
Constant Chaos
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Re: How much do you plan to save in your 529 plan?

Post by Constant Chaos »

Now that my oldest child has started high school, Naviance is my new favorite toy, and according to it, the seniors from our high school accepted at Northwestern, on average, have a slightly higher GPA and one point higher on the ACT than those students accepted at Harvard. Not bad for a second tier school! :wink:

To answer the OP, we have saved enough in the 529 plan to pay in state tuition and room and board, which right now is approx. $30,000 per year. Other saving for college is done in taxable accounts.
thx1138
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Re: How much do you plan to save in your 529 plan?

Post by thx1138 »

We are fortunate to be able to fill up all our tax advantaged retirement space. As others have said I'd recommend filling that first in most cases.

We view all our portfolios as one and so with a daughter who will very likely go to college the 529 is a way to expand our tax sheltered space.

We can get a state tax deduction for up to $5K per year for 529 contributions for our daugther so we do that. I did drop the ball on the very first part of a year we could do that (she was born mid year). Too tired and exhausted to think. Our state also allows you to front load the 529 and take the deductions over future years but since we are not certain of our residency for more than a few years out I've hesitated to do that. We certainly could dump a lot in from our taxable but for now I prefer the liquidity of the taxable account and saving 529 contribution deductions for the year of their contribution whereever we happen to live at that time.

We did take an odd approach to expanding our tax sheltered space a bit. We bought $20K of E bonds shortly after she was born. Those double in 20 years and at the time the 3.5% interest that works out to be and tax free if spent on education was a interesting opportunity to put a long duration bond in an expanded tax sheltered space. It was kind of like making an extra $20K Roth contribution to a 20 yr treasury with a very slightly better interest rate. Obviously this scheme does not have the liquidity for rebalancing that an actual treasury in a Roth does. But again, quest for tax sheltered. This only works if you buy close to birth cause she still needs to be in college 20 years later!
thx1138
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Re: How much do you plan to save in your 529 plan?

Post by thx1138 »

dhodson wrote:I normally think playing the aid game is a bad idea and doesn't work out but id be considering putting my money into non or less likely to count assets like my house/mortgage at this point. There are lots of problems with this approach primarily being that you assume what doesn't count today wont count in the future.
You don't have to pay your mortgage down 15 years early though. If you've got a mortgage with a nice low fixed interest rate that's a unique inflation hedge and I'd want my investments directed elsewhere for college *saving*. Now, it could make a whole lot of sense to reduce college *expense* by gaming the asset evaluation system. But you can do that a few years out from college when you have much better information regarding policies and strategies. For example, wait until a few years out and then dump your taxable into your mortgage if that is going to be advantageous. No need to do that any earlier than you have too. Put another way, don't create illiquidity or opportunity costs when you don't have to.
livesoft
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Re: How much do you plan to save in your 529 plan?

Post by livesoft »

An FYI from a recent Northwestern grad to me: NU is not on the semester system, but is on the quarter (trimester) system. This made it different as far as recruiting and timing of jobs versus universities on the semester system. For instance, I was told by a senior that some recruiters told them that "All are positions are filled by folks from other universities already, but we come here because it is on our schedule." Now that is second hand to me, so maybe someone else can comment. A NU parent told me directly to consider this BEFORE matriculating at NU.
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sesq
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Re: How much do you plan to save in your 529 plan?

Post by sesq »

I started with college costs http://trends.collegeboard.org/college- ... or-2013-14 and then estimated them out to the years my kids will be in college with a 4.5% inflation factor.

I then worked backwards with declining returns (due to AA getting more conservative) from 4-8 percent to figure out what kind of lump sum I'd need to hit my target. This is of course a little silly since returns don't compound in a nice even pattern, but I am just trying to gin up an estimate. I then ballparked that we'd be willing to pay for 3 years private and whatever that is for public (looks like about 167% of projected costs). We are front loading it at the moment to take advantage of the PA state tax deduction, so $28K per year. I think I am about halfway there with my kids going into 3rd grade & Kindergarten respectively. Depending on incentive comp I expect to hit my bogey in the next 3-4 years. Then take a break (translate fund taxable accounts) until the day draws near and we have a sense of what net costs will look like.
pulcinella
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Re: How much do you plan to save in your 529 plan?

Post by pulcinella »

I got some help recently about my 529 plans which was useful to me: http://www.bogleheads.org/forum/viewtop ... 1&t=143599

I expect one or both kids to go to grad school - but who knows.... right?

I've saved from the time both my kids were born and decided to aim to fund 4 years of 'ivy' tuition and 1 year of grad school each. For me, I am comfortable with that overfunding hedge. If one kid goes, they will get 2 years covered; 1 yr if they each go. If none go, then the 529 will go to grandkids, if I ever have any. For grad school anyway, they will assume some debt on their own - the free ride ends with college education in my personal view.

The rest of the potential funding will come from money in the VG tax managed balanced fund for the 'overage' if there is any. This is in my taxable account. I will pay tax on selling it of course, but the ongoing growth is tax favorable.

A particularly good piece of advice I got was that the 529 penalty is on EARNINGS only. With your contributions in fixed income vehicles, you aren't going to be pinched by Uncle Same nearly as much as if you were to withdraw equity gains (and the later the contribution the cheaper the penalty). Use equity money for school first, then draw down fixed income. True, the tax advantage is less anyway with late FI money - but it's still a hedge against overfunding too.

* One other thing I would add is that room and board are on campus only. If your kid moves off campus, you cant use it - and many kids do go off campus in the 3rd and 4 yr. Another planning thought.
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The529guy
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Re: How much do you plan to save in your 529 plan?

Post by The529guy »

pulcinella wrote:* One other thing I would add is that room and board are on campus only. If your kid moves off campus, you cant use it - and many kids do go off campus in the 3rd and 4 yr. Another planning thought.
Not accurate.

From Pub 970, Chapter 8:
Qualified education expenses.

3. Expenses for room and board must be incurred by students who are enrolled at least half-time. The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts.

a. The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.

b. The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.
The "allowance for room and board" that's "included in the cost of attendance (for federal financial aid purposes)" is generally provided in a school financial aid office's student budget.
letsgobobby
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Re: How much do you plan to save in your 529 plan?

Post by letsgobobby »

thx1138 wrote:We are fortunate to be able to fill up all our tax advantaged retirement space. As others have said I'd recommend filling that first in most cases.

We view all our portfolios as one and so with a daughter who will very likely go to college the 529 is a way to expand our tax sheltered space.

We can get a state tax deduction for up to $5K per year for 529 contributions for our daugther so we do that. I did drop the ball on the very first part of a year we could do that (she was born mid year). Too tired and exhausted to think. Our state also allows you to front load the 529 and take the deductions over future years but since we are not certain of our residency for more than a few years out I've hesitated to do that. We certainly could dump a lot in from our taxable but for now I prefer the liquidity of the taxable account and saving 529 contribution deductions for the year of their contribution whereever we happen to live at that time.

We did take an odd approach to expanding our tax sheltered space a bit. We bought $20K of E bonds shortly after she was born. Those double in 20 years and at the time the 3.5% interest that works out to be and tax free if spent on education was a interesting opportunity to put a long duration bond in an expanded tax sheltered space. It was kind of like making an extra $20K Roth contribution to a 20 yr treasury with a very slightly better interest rate. Obviously this scheme does not have the liquidity for rebalancing that an actual treasury in a Roth does. But again, quest for tax sheltered. This only works if you buy close to birth cause she still needs to be in college 20 years later!
Not going to work for OP because his income is far too high.

OP I would think about a 529 much more broadly. You are well situated to think of a 529 as an educational trust for your family. We aim to have about $1 million nominal in our 529s for two kids and won't sweat overfunding because the income and estate tax benefits in our tax bracket are substantial and we are happy to contribute to future grandkids and nieces/nephews for their education.
pulcinella
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Re: How much do you plan to save in your 529 plan?

Post by pulcinella »

The529guy wrote:
pulcinella wrote:* One other thing I would add is that room and board are on campus only. If your kid moves off campus, you cant use it - and many kids do go off campus in the 3rd and 4 yr. Another planning thought.
Not accurate.

From Pub 970, Chapter 8:
Qualified education expenses.

3. Expenses for room and board must be incurred by students who are enrolled at least half-time. The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts.

a. The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student.

b. The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution.
The "allowance for room and board" that's "included in the cost of attendance (for federal financial aid purposes)" is generally provided in a school financial aid office's student budget.
I happily stand corrected! Thats a big plus. Not sure how that translates from on campus housing to off campus costs, but it's a big boost nonetheless.

Edited to add my local ivy 'allows for nearly 9K and that is money I hadnt figured on being able to use. Thanks 529guy.

http://www.sfs.upenn.edu/paying/cost-of-attendance.htm
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The529guy
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Re: How much do you plan to save in your 529 plan?

Post by The529guy »

pulcinella wrote:Happily stand corrected! Thats a big plus. Not sure how that translates from on campus housing to off campus costs, but it's a big boost nonetheless.
I interpret this passage to mean that if your off-campus room and board expenses exceed the numbers listed in the official student budget, then the excess isn't "qualified" when you compare your 529 distributions to your "qualified education expenses" at tax time.

Edit: No problem! I realize now that maybe you meant that you weren't sure how much higher/lower off-campus housing could be.
LongerPrimer
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Re: How much do you plan to save in your 529 plan?

Post by LongerPrimer »

In our time, in the beginning (1985), we only had UGMA/UTMA. Then we had Coverdell and then a few years of 529. We did the UGMA and did a little of 529 only to capture our state's tax benefit. In one year, the 529 money remained on account for 2 days.

Today, I believe I would still do a blend of UGMA and 529 for flexibility and tax purposes.

If your child is 3, and the expected age to college is 18, you really only have approx 12 years of hardcore investing. The last years of the investment doesn't have enough time to grow appreciably, if any. In the beginning, we had an investment goal of fully funding private college tuition, and default to public college costs. The UGMA strategy worked OK and DS is an outstanding young man at 29. He will be a great catch for some girl on the hunt.

In 2002, we sent/allowed/honored DS to attend the most expensive college in USA at $28,000/yr tuition. His graduation 2006, that same tuition for new students was $38,000. In 2014 the nut is $58,000 tuition only. [+/- $1000 to all values]. Going forward, the expected college "cost of attendance, COA" is about 4%. In our time it was 6%. I targeted 12% annualized growth over 18 years. Your investments absolutely need to grow overtime.

We DCA. We front loaded at birth into high growth Mutual Funds and selected stocks. We eventually got to the end point with considerable amount of government backed loans because of 9/11 while preserving what was left of UGMA for better days. About $50,000 student loans @3% remains of which DS has assumed responsibility for repayment, nondeductible interest (income too high) The remainder of UGMA and small 529 remains today; All of the UGMA converted to Vanguard TSM in 2007, as personal assets, and was finally extinguished when DS bought bought a house, last month. The last UGMA contribution was in 1997. The first 529 contribution was in 2001, and last in 2006. The last 529 contribution remains and has grown nearly 0% because of foreign and cash investment investment strategies (I tried to diversified original monies into high risk international growth and conservative cash, and should have stuck to VTSM. Amount is about $1500, and today it is now growing in all domestic equity).

GL
Last edited by LongerPrimer on Thu Aug 21, 2014 12:19 pm, edited 1 time in total.
Grt2bOutdoors
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Re: How much do you plan to save in your 529 plan?

Post by Grt2bOutdoors »

Save your money for grad school, spending $400K estimated for 4 years of undergrad is nuts.
Cut the credit spigot off, and suddenly prices will fall down into the land of reality. Prices don't shoot up forever.
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Slowmaha
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Re: How much do you plan to save in your 529 plan?

Post by Slowmaha »

TDAlmighty wrote:We have a baby less than a year old and opened his 529 last month. We are just pulling money out of cash in-flow to do monthly automatic contributions to 529 -- no lumpsum. Similar to Theotree, I tried to forecast what in-state public undergrad would cost 17 years from now and calculated what steady amount of monthly contributions would get us there (of course making conservative assumptions about returns as well).

I also have also been pleasantly surprised that mentioning to family about contributing to 529 through UGift was warmly received :happy

I tried that and my family looked at me like I had two heads... "Yeah, but toys are way COOLER"... :?
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CMartel2
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Re: How much do you plan to save in your 529 plan?

Post by CMartel2 »

Aptenodytes wrote:
Grt2bOutdoors wrote:
Can someone define what a "2nd tier expensive private college" is? Names for example?
Well, this is an easy way to offend large numbers of alumni, but here are some examples often considered to fall in this group:

+ Northwestern
+ Middlebury
+ Rice
+ Johns Hopkins
+ Emory
+ Tufts
Those schools are nationally reknowned for having strong academic reputations with large research programs and professional schools that have very good reputations. I would view second-tier as a school that is probably not very well known outside of its local area but still charges quite a large sum for tuition.
mayday23
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Re: How much do you plan to save in your 529 plan?

Post by mayday23 »

i have a 2 yr old daughter and plan on saving $200K. 4 years at $50/yr is my thought process.
111
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Re: How much do you plan to save in your 529 plan?

Post by 111 »

None. I don't really see enough benefit to it since my state has no income tax. I'm maxing out retirement accounts instead.
HopeToGolf
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Re: How much do you plan to save in your 529 plan?

Post by HopeToGolf »

We are targeting 100% of 4 years at our public state university which we estimate will be about 50% of 4 years (IOW 100% of 2 years) of private school tuition.

If we have a shortfall, we will cash flow the remainder. If we cannot pay cash for the shortfall then the kid will have to borrow or find a cheaper school. At this point, if all goes well, I do not plan to borrow in my name for my child's tuition.
trueblueky
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Re: How much do you plan to save in your 529 plan?

Post by trueblueky »

HopeToGolf wrote:We are targeting 100% of 4 years at our public state university which we estimate will be about 50% of 4 years (IOW 100% of 2 years) of private school tuition.

If we have a shortfall, we will cash flow the remainder. If we cannot pay cash for the shortfall then the kid will have to borrow or find a cheaper school. At this point, if all goes well, I do not plan to borrow in my name for my child's tuition.
Plan to pay $4,000 of tuition out-of-pocket or from taxable savings. This will get you the $2,500 American Opportunity (federal tax) Credit each year for four tax years of undergraduate.
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