Saving for college for 2 kids: 3 and 0

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Topic Author
Alto Astral
Posts: 694
Joined: Thu Oct 08, 2009 10:47 am

Saving for college for 2 kids: 3 and 0

Post by Alto Astral » Fri Feb 10, 2017 2:33 pm

Him: Age=37, Income=130K
Her: Age=32, Income=100K
Current AA: 67% Stocks + 33% Bonds
401k: $340K [His & Her match 4%] (continuing to max out both of our plans)
Roth IRA: $100 (planning backdoor)
Other IRAs: None
Cash: $110K (6+ months living expenses)
Mortgage: $235K at 3.625% interest 30Y fixed (currently paying $800 extra per month towards principal to pay it off in 15 years)
Tax: Married-Filing-Jointly, 28% Bracket
State: IL
Kids: 3 year old and newborn (planning 529s)

Right now I have nothing saved for the kids. I was doing some spreadsheet calculations for the cost of 4-year college.

Current and Projected Tuition+Board etc:
For an IL State University: In 2017: $120K. In 2032: $244K (assuming 4-6% tuition increase each year)
For an Ivy League University: In 2017: $260K. In 2032: $347K (assuming 4-6% tuition increase each year)

Contributions needed to meet Projected costs:
The 3 year old will go to college in 2032. Assuming a 6% year growth, I will need to save
$839 per month for an IL State University and
$1,193 per month for an Ivy League University

The newborn will go to college in 2036. Assuming a 6% year growth, I will need to save
$576 per month for an IL State University and
$819 per month for an Ivy League University

Total contributions needed:
So I will need to start saving this amount per month:
$1,415 per month or $16,981 annually for an IL State University and
$2,012 per month or $24,149 annually for an Ivy League University


The IL 529 plan seems decent with Vanguard stock/bond funds and ER of 0.17-0.19

Plan:
1. I plan to put in $11K each year via backdoor roth IRA using both of our accounts and the balance in a 529 plan. The thought is that if either of them gets a scholarship, I can withdraw the money from the 529 and still have some money in the Roth IRA. If neither of them get scholarship, then hopefully our 401ks should cover our retirement; but I can wait a decade before deciding if I should/want to do this.
2. I could put $11K each year in Roth and keep that separate from education. Now try to add all contributions to the 529 plans. This will make for a better cushion in retirement but keep a lot of money in the 529.

Are there other strategies that you've used that I've not considered?

Thanks for your time
Alto

livesoft
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Joined: Thu Mar 01, 2007 8:00 pm

Re: Saving for college for 2 kids: 3 and 0

Post by livesoft » Fri Feb 10, 2017 2:37 pm

Your plan is fine for this stage of your lives. There is no doubt that it will evolve as time goes on. Good luck!

I guess I'll add a personal anecdote: Our family had two kids born in our late 30's. We were in the 28% marginal income tax bracket for a while until I semi-retired at age 50 and our income dropped a lot. We didn't start 529 plans until our kids were in their teens. We had no problems paying list prices with no financial aid for university educations more expensive than you have listed. You will be just fine.

For help with not paying income taxes for your demographic, please see this thread:
viewtopic.php?t=79510
The reason to post that thread is that money saved by not having to pay income taxes can be used to pay for college.
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MindTheGAAP
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Joined: Fri Jan 31, 2014 12:44 am

Re: Saving for college for 2 kids: 3 and 0

Post by MindTheGAAP » Fri Feb 10, 2017 2:44 pm

livesoft wrote:Your plan is fine for this stage of your lives. There is no doubt that it will evolve as time goes on. Good luck!
+1. I have 4.5y/o, 3y/o, and 4m/o daughters and we recently started thinking more about the whole University savings mission. We decided that since we are in TX, we would use a Vanguard brokerage account (taxable) instead of a 529 plan for various reasons. We already max out 401ks ($36k/yr - this year, last year wifey didn't have access to one) and two Roth IRAs ($11k) for retirement purposes.

We went with a brokerage account over 529 for a couple of reasons: firstly, we don't get a tax-break on contributions since we live in TX & we don't know what the future of higher education will look like OR if kiddos will get any kind of scholarships if such things exist at the time. For us, we liked the idea of having greater flexibility with the brokerage account.

One other conversation point that was relevant for us: I want to give my kids the option, if they are adequately equipped, of receiving seed money instead of going to University. If they can present a viable alternative for the money (starting own business, ex.) then I'm perfectly happy offering $x in seed money to get them off of the ground. I think the piece of paper from University is great, but not sold on the necessity of it if you can forge your own way. Just my $0.02.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

KlangFool
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Re: Saving for college for 2 kids: 3 and 0

Post by KlangFool » Fri Feb 10, 2017 2:52 pm

OP,

<<Cash: $110K (6+ months living expenses)>>

This has to be wrong. You are making 230K per year and your annual expense is 200+K?

1) You do not save enough for retirement. So, why do you worry about saving for college?

2) Go with 11K Backdoor Roth IRA.

3) Look into Mega Backdoor Roth IRA for money beyond Backdoor IRA or invest in the taxable account.

In 15+ years time, if you are doing well and still fully employed, you could "cash flow" the college education. It is between 60K to 80K per year. Your annual savings is at least 36K per year. Plus a bit of money from the taxable account and Roth IRA contribution, you could pay it as it goes.

If you are not doing well and forced into long-term unemployment and/or underemployment. You have the money to support your family.

KlangFool

User avatar
CyclingDuo
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Re: Saving for college for 2 kids: 3 and 0

Post by CyclingDuo » Fri Feb 10, 2017 2:55 pm

Alto Astral wrote:Him: Age=37, Income=130K
Her: Age=32, Income=100K
Current AA: 67% Stocks + 33% Bonds
401k: $340K [His & Her match 4%] (continuing to max out both of our plans)
Roth IRA: $100 (planning backdoor)
Other IRAs: None
Cash: $110K (6+ months living expenses)
Mortgage: $235K at 3.625% interest 30Y fixed (currently paying $800 extra per month towards principal to pay it off in 15 years)
Tax: Married-Filing-Jointly, 28% Bracket
State: IL
Kids: 3 year old and newborn (planning 529s)

Right now I have nothing saved for the kids. I was doing some spreadsheet calculations for the cost of 4-year college.

Current and Projected Tuition+Board etc:
For an IL State University: In 2017: $120K. In 2032: $244K (assuming 4-6% tuition increase each year)
For an Ivy League University: In 2017: $260K. In 2032: $347K (assuming 4-6% tuition increase each year)

Contributions needed to meet Projected costs:
The 3 year old will go to college in 2032. Assuming a 6% year growth, I will need to save
$839 per month for an IL State University and
$1,193 per month for an Ivy League University

The newborn will go to college in 2036. Assuming a 6% year growth, I will need to save
$576 per month for an IL State University and
$819 per month for an Ivy League University

Total contributions needed:
So I will need to start saving this amount per month:
$1,415 per month or $16,981 annually for an IL State University and
$2,012 per month or $24,149 annually for an Ivy League University


The IL 529 plan seems decent with Vanguard stock/bond funds and ER of 0.17-0.19

Plan:
1. I plan to put in $11K each year via backdoor roth IRA using both of our accounts and the balance in a 529 plan. The thought is that if either of them gets a scholarship, I can withdraw the money from the 529 and still have some money in the Roth IRA. If neither of them get scholarship, then hopefully our 401ks should cover our retirement; but I can wait a decade before deciding if I should/want to do this.
2. I could put $11K each year in Roth and keep that separate from education. Now try to add all contributions to the 529 plans. This will make for a better cushion in retirement but keep a lot of money in the 529.

Are there other strategies that you've used that I've not considered?

Thanks for your time
Alto
We used UTMA accounts for each child (as well as Coverdell and UGMA Giftrust accounts). I would still do the UTMA accounts today if starting out as I like the flexibility of them.

Contribute early and often to let the power of compounding and time work its magic.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: Saving for college for 2 kids: 3 and 0

Post by KlangFool » Fri Feb 10, 2017 3:01 pm

OP,

<< Current and Projected Tuition+Board etc:
For an IL State University: In 2017: $120K. In 2032: $244K (assuming 4-6% tuition increase each year)
For an Ivy League University: In 2017: $260K. In 2032: $347K (assuming 4-6% tuition increase each year)>>

Let's think about this in a logical fashion.

Are you willing to spend 244K for your kid's college if your total net worth at that time is 244K? How about 488K? How many percents of your net worth are you willing to spend on your kid's college? And, the answer will change depending on whether you are employed, long-term unemployed and/or long-term underemployed at that time.

Ditto for 347K. And, you have to multiply the number by 2 since you have 2 kids.

Ask yourself this question:

What will your total net worth including the college money has to be in 15 years for you to spend

A) 244K

B) 347K

on your son's college.

Some parent may be willing to sleep on the street and sell their house for this happen. For most of us, it has to be a reasonable percentage of our net worth.

KlangFool

Jack FFR1846
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Re: Saving for college for 2 kids: 3 and 0

Post by Jack FFR1846 » Fri Feb 10, 2017 3:05 pm

You're doing the right calculations, in my opinion. Some random things:

If kids apply and go to a school below their "level", merit aid can be much larger and this is in the form of grants.

Be aware that transfer students are not offered merit aid in most cases. This should be noted if you were to consider the 2 year community college, then 2 years at a 4 year college.

If you work for Megacorp and can swing a stint in Germany, universities there don't charge anything. Other countries may also offer this.....I only have looked into Germany.
Bogle: Smart Beta is stupid

Topic Author
Alto Astral
Posts: 694
Joined: Thu Oct 08, 2009 10:47 am

Re: Saving for college for 2 kids: 3 and 0

Post by Alto Astral » Fri Feb 10, 2017 3:10 pm

KlangFool wrote:OP,

<<Cash: $110K (6+ months living expenses)>>

This has to be wrong. You are making 230K per year and your annual expense is 200+K?
:) I only meant it covers 6+ month expenses and then some. Monthly expenses would be around $4-5K (mortgage, utilities bills, daycare expenses etc)
KlangFool wrote: 1) You do not save enough for retirement. So, why do you worry about saving for college?

2) Go with 11K Backdoor Roth IRA.
We are maxing out 401k. I believe you mean this is not sufficient? Hence the advice of Backdoor Roth IRA?
KlangFool wrote: 3) Look into Mega Backdoor Roth IRA for money beyond Backdoor IRA or invest in the taxable account.
Will look into the Mega option. From what I remember a while back, it was only in special circumstance if your employer supported a certain kind of plan.
KlangFool wrote: In 15+ years time, if you are doing well and still fully employed, you could "cash flow" the college education. It is between 60K to 80K per year.
I thought about this but the sticker shock of tuition freaked me out a bit.
KlangFool wrote: Your annual savings is at least 36K per year. Plus a bit of money from the taxable account and Roth IRA contribution, you could pay it as it goes.
If you are not doing well and forced into long-term unemployment and/or underemployment. You have the money to support your family.
KlangFool
I believe you mean the money in taxable accounts (not Roth) will help here. Makes sense.

KlangFool
Posts: 13297
Joined: Sat Oct 11, 2008 12:35 pm

Re: Saving for college for 2 kids: 3 and 0

Post by KlangFool » Fri Feb 10, 2017 3:16 pm

Alto Astral wrote:
KlangFool wrote:OP,

<<Cash: $110K (6+ months living expenses)>>

This has to be wrong. You are making 230K per year and your annual expense is 200+K?
:) I only meant it covers 6+ month expenses and then some. Monthly expenses would be around $4-5K (mortgage, utilities bills, daycare expenses etc)
KlangFool wrote: 1) You do not save enough for retirement. So, why do you worry about saving for college?

2) Go with 11K Backdoor Roth IRA.
We are maxing out 401k. I believe you mean this is not sufficient? Hence the advice of Backdoor Roth IRA?
KlangFool wrote: 3) Look into Mega Backdoor Roth IRA for money beyond Backdoor IRA or invest in the taxable account.
Will look into the Mega option. From what I remember a while back, it was only in special circumstance if your employer supported a certain kind of plan.
KlangFool wrote: In 15+ years time, if you are doing well and still fully employed, you could "cash flow" the college education. It is between 60K to 80K per year.
I thought about this but the sticker shock of tuition freaked me out a bit.
KlangFool wrote: Your annual savings is at least 36K per year. Plus a bit of money from the taxable account and Roth IRA contribution, you could pay it as it goes.
If you are not doing well and forced into long-term unemployment and/or underemployment. You have the money to support your family.
KlangFool
I believe you mean the money in taxable accounts (not Roth) will help here. Makes sense.
Alto Astral,

<<I believe you mean the money in taxable accounts (not Roth) will help here.>>

You can withdraw the Roth IRA contribution any time without penalty. You have (11K X 15 years = ) 165K of Roth contribution that you can use to pay for your son's college.

KlangFool

aristotelian
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Re: Saving for college for 2 kids: 3 and 0

Post by aristotelian » Fri Feb 10, 2017 3:20 pm

CyclingDuo wrote: We used UTMA accounts for each child (as well as Coverdell and UGMA Giftrust accounts). I would still do the UTMA accounts today if starting out as I like the flexibility of them.

Contribute early and often to let the power of compounding and time work its magic.
The thought of my kids getting a large chunk of my money at Age 18 or 21 with no strings attached scares me too much. Why not let the compounding happen in a 529 and tie the money to education? You can always take it out if you decide you need it for other purposes.

MindTheGAAP
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Re: Saving for college for 2 kids: 3 and 0

Post by MindTheGAAP » Fri Feb 10, 2017 3:34 pm

The thought of my kids getting a large chunk of my money at Age 18 or 21 with no strings attached scares me too much. Why not let the compounding happen in a 529 and tie the money to education? You can always take it out if you decide you need it for other purposes.
1. If you have had the appropriate conversations with them, why would this scare you?

2. You can pull it out of a 529 for other purposes... but it is my understanding you'd pay a penalty for doing so, no?
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

Topic Author
Alto Astral
Posts: 694
Joined: Thu Oct 08, 2009 10:47 am

Re: Saving for college for 2 kids: 3 and 0

Post by Alto Astral » Fri Feb 10, 2017 3:35 pm

livesoft wrote:Your plan is fine for this stage of your lives. There is no doubt that it will evolve as time goes on. Good luck!
Thanks
livesoft wrote:I guess I'll add a personal anecdote: Our family had two kids born in our late 30's. We were in the 28% marginal income tax bracket for a while until I semi-retired at age 50 and our income dropped a lot.
Hey, that sounds like us :)
livesoft wrote: We didn't start 529 plans until our kids were in their teens. We had no problems paying list prices with no financial aid for university educations more expensive than you have listed. You will be just fine.
Thanks; it gives some solace. Between my sleep-deprived and diaper-changing states; I just got a major sticker shock with the projected tuition costs.
livesoft wrote: For help with not paying income taxes for your demographic, please see this thread:
viewtopic.php?t=79510
The reason to post that thread is that money saved by not having to pay income taxes can be used to pay for college.
Thats amazing with $20K tax on $200k income. While our incomes have been around $230K, out tax in 2015 was $37K and in 2016 seems to be $32k (mortgage interest due to new home)

Topic Author
Alto Astral
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Re: Saving for college for 2 kids: 3 and 0

Post by Alto Astral » Fri Feb 10, 2017 3:37 pm

MindTheGAAP wrote:
The thought of my kids getting a large chunk of my money at Age 18 or 21 with no strings attached scares me too much. Why not let the compounding happen in a 529 and tie the money to education? You can always take it out if you decide you need it for other purposes.
1. If you have had the appropriate conversations with them, why would this scare you?

2. You can pull it out of a 529 for other purposes... but it is my understanding you'd pay a penalty for doing so, no?
I believe you can take out the contributions penalty free for any reason. But the earnings will be incur a 10% penalty (plus income tax) if for non-educational purposes. Much like Roth IRA before the age of 60.

Update: I take this back. There will be a penalty on a portion of the withdrawal, even if it is this same as the contribution amount. See this thread: viewtopic.php?t=7142#p87795
Last edited by Alto Astral on Fri Feb 10, 2017 4:09 pm, edited 1 time in total.

Topic Author
Alto Astral
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Re: Saving for college for 2 kids: 3 and 0

Post by Alto Astral » Fri Feb 10, 2017 3:57 pm

MindTheGAAP wrote: We went with a brokerage account over 529 for a couple of reasons: firstly, we don't get a tax-break on contributions since we live in TX & we don't know what the future of higher education will look like OR if kiddos will get any kind of scholarships if such things exist at the time. For us, we liked the idea of having greater flexibility with the brokerage account.
I thought of this. But wouldn't the earnings be taxable? Even without any deductions (IL allows 3%), the earnings would be significant over 15 years in a Vanguard Stock fund.
MindTheGAAP wrote: One other conversation point that was relevant for us: I want to give my kids the option, if they are adequately equipped, of receiving seed money instead of going to University. If they can present a viable alternative for the money (starting own business, ex.) then I'm perfectly happy offering $x in seed money to get them off of the ground. I think the piece of paper from University is great, but not sold on the necessity of it if you can forge your own way. Just my $0.02.
I appreciate your open-mindedness in this area. My granddads would approve of this :) Both owned small businesses. My dad and I went the 9-5 employee route. If my kids take my advice, I would recommend them to keep the university degree as a backup-plan. Dropping out worked out fine for Steve Jobs and Frank Lloyd Wright but call me old fashioned...

MindTheGAAP
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Re: Saving for college for 2 kids: 3 and 0

Post by MindTheGAAP » Fri Feb 10, 2017 4:13 pm

Alto Astral wrote:
MindTheGAAP wrote: We went with a brokerage account over 529 for a couple of reasons: firstly, we don't get a tax-break on contributions since we live in TX & we don't know what the future of higher education will look like OR if kiddos will get any kind of scholarships if such things exist at the time. For us, we liked the idea of having greater flexibility with the brokerage account.
I thought of this. But wouldn't the earnings be taxable? Even without any deductions (IL allows 3%), the earnings would be significant over 15 years in a Vanguard Stock fund.
Earnings would be taxable... As they were recognised.
MindTheGAAP wrote: One other conversation point that was relevant for us: I want to give my kids the option, if they are adequately equipped, of receiving seed money instead of going to University. If they can present a viable alternative for the money (starting own business, ex.) then I'm perfectly happy offering $x in seed money to get them off of the ground. I think the piece of paper from University is great, but not sold on the necessity of it if you can forge your own way. Just my $0.02.
I appreciate your open-mindedness in this area. My granddads would approve of this :) Both owned small businesses. My dad and I went the 9-5 employee route. If my kids take my advice, I would recommend them to keep the university degree as a backup-plan. Dropping out worked out fine for Steve Jobs and Frank Lloyd Wright but call me old fashioned...[/quote]

Agreed. Would need to have a legitimate business proposition to opt for this route but should automation continue the way it is going, it might be sufficient to acquire a piece of the action. Recent article that I read springs to mind http://www.businessinsider.com/fiscal-p ... ing-2017-2. Besides, they can always go back to University if they were unable to make it with their business... It doesn't have to be a binary choice.
Last edited by MindTheGAAP on Fri Feb 10, 2017 4:28 pm, edited 1 time in total.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

Topic Author
Alto Astral
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Re: Saving for college for 2 kids: 3 and 0

Post by Alto Astral » Fri Feb 10, 2017 4:25 pm

KlangFool wrote:OP,

<< Current and Projected Tuition+Board etc:
For an IL State University: In 2017: $120K. In 2032: $244K (assuming 4-6% tuition increase each year)
For an Ivy League University: In 2017: $260K. In 2032: $347K (assuming 4-6% tuition increase each year)>>

Let's think about this in a logical fashion.

Are you willing to spend 244K for your kid's college if your total net worth at that time is 244K? How about 488K? How many percents of your net worth are you willing to spend on your kid's college? And, the answer will change depending on whether you are employed, long-term unemployed and/or long-term underemployed at that time.

Ditto for 347K. And, you have to multiply the number by 2 since you have 2 kids.

Ask yourself this question:

What will your total net worth including the college money has to be in 15 years for you to spend

A) 244K

B) 347K

on your son's college.

Some parent may be willing to sleep on the street and sell their house for this happen. For most of us, it has to be a reasonable percentage of our net worth.

KlangFool
I don't know; I had not thought about this in those terms. I did some FutureValue calculations on my spreadsheet. Assuming $36K/year in 401k and $11K/year in Roth IRA with growth rates on 6% on the stock portion and 3% on the bond portion. I assumed everything in stocks in the Roth IRA. With this rough calculation and excluding any cash we may have at that time, it brings the net worth to $1.2M in 2030 and $2.4M in 2040. This assumes I've not raided either of these accounts in the college going decade between 2030-2040. I have not considered any 529 contributions either and I assume I will retire in the home I am in.
So in this case it would be 25-50% of net worth. I am not sure if this will make me sleep on the street; but it would surely make great headlines: "Dad of Harvard graduates on the streets" :)

flyingbison
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Re: Saving for college for 2 kids: 3 and 0

Post by flyingbison » Fri Feb 10, 2017 4:29 pm

Alto Astral wrote: I just got a major sticker shock with the projected tuition costs.
You have to keep in mind that a significant portion of those "cost of attendance" figures you are using include food, housing, transportation, etc. There are a lot of variables in living expenses, and they will be incurred by your kids whether or not they are in college.

KlangFool
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Re: Saving for college for 2 kids: 3 and 0

Post by KlangFool » Fri Feb 10, 2017 4:33 pm

Alto Astral wrote: I don't know; I had not thought about this in those terms. I did some FutureValue calculations on my spreadsheet. Assuming $36K/year in 401k and $11K/year in Roth IRA with growth rates on 6% on the stock portion and 3% on the bond portion. I assumed everything in stocks in the Roth IRA. With this rough calculation and excluding any cash we may have at that time, it brings the net worth to $1.2M in 2030 and $2.4M in 2040. This assumes I've not raided either of these accounts in the college going decade between 2030-2040. I have not considered any 529 contributions either and I assume I will retire in the home I am in.
So in this case it would be 25-50% of net worth. I am not sure if this will make me sleep on the street; but it would surely make great headlines: "Dad of Harvard graduates on the streets" :)
Alto Astral,

<<it brings the net worth to $1.2M in 2030 and $2.4M in 2040. >>

So, if everything went well, you have 1.2M at 2030. And, you can afford to pay 244K/347K. And, you can afford to stop contributing to retirement and "cash flow" the college funding.

What if things not going as well and you have 600K in 2030, are you willing to pay 244K/347K? For many people, the answer will be no.

Keeping the money in Roth/Taxable gives you the flexibility to deal with this question 15 years later.

You are not going to spend the money on your kid's college education and be a burden to your children. That is not helping anyone.

KlangFool

Topic Author
Alto Astral
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Re: Saving for college for 2 kids: 3 and 0

Post by Alto Astral » Fri Feb 10, 2017 4:35 pm

MindTheGAAP wrote:
Alto Astral wrote:
MindTheGAAP wrote: One other conversation point that was relevant for us: I want to give my kids the option, if they are adequately equipped, of receiving seed money instead of going to University. If they can present a viable alternative for the money (starting own business, ex.) then I'm perfectly happy offering $x in seed money to get them off of the ground. I think the piece of paper from University is great, but not sold on the necessity of it if you can forge your own way. Just my $0.02.
I appreciate your open-mindedness in this area. My granddads would approve of this :) Both owned small businesses. My dad and I went the 9-5 employee route. If my kids take my advice, I would recommend them to keep the university degree as a backup-plan. Dropping out worked out fine for Steve Jobs and Frank Lloyd Wright but call me old fashioned...
Agreed. Would need to have a legitimate business proposition to opt for this route but should automation continue the way it is going, it might be sufficient to acquire a piece of the action. Recent article that I read springs to mind http://www.businessinsider.com/fiscal-p ... ing-2017-2. Besides, they can always go back to University if they were unable to make it with their business... It doesn't have to be a binary choice.
Tell me about it! I am in IT - the biggest risk to jobs, in my mind, is the robot we do not see: Artificial Intelligence. And its coming fast.

MindTheGAAP
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Re: Saving for college for 2 kids: 3 and 0

Post by MindTheGAAP » Fri Feb 10, 2017 4:38 pm

KlangFool wrote:You are not going to spend the money on your kid's college education and be a burden to your children. That is not helping anyone.
Often understated by many. Doesn't do your kids any good by putting them through University and then needing them to fund your final years... I know if given the choice, I'd rather taken on student loans and not have to cover my folks' retirement.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

KlangFool
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Re: Saving for college for 2 kids: 3 and 0

Post by KlangFool » Fri Feb 10, 2017 4:44 pm

MindTheGAAP wrote:
KlangFool wrote:You are not going to spend the money on your kid's college education and be a burden to your children. That is not helping anyone.
Often understated by many. Doesn't do your kids any good by putting them through University and then needing them to fund your final years... I know if given the choice, I'd rather taken on student loans and not have to cover my folks' retirement.
MindTheGAAP,

Unfortunately, many of my peers did that. And, they hide this fact from their children. They dare and could not tell their children that their children cannot go to private colleges.

KlangFool

KlangFool
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Re: Saving for college for 2 kids: 3 and 0

Post by KlangFool » Fri Feb 10, 2017 4:48 pm

Alto Astral wrote:
MindTheGAAP wrote: We went with a brokerage account over 529 for a couple of reasons: firstly, we don't get a tax-break on contributions since we live in TX & we don't know what the future of higher education will look like OR if kiddos will get any kind of scholarships if such things exist at the time. For us, we liked the idea of having greater flexibility with the brokerage account.
I thought of this. But wouldn't the earnings be taxable? Even without any deductions (IL allows 3%), the earnings would be significant over 15 years in a Vanguard Stock fund.
Alto Astral,

There are ways to invest tax efficiently in the taxable account. Search this forum or ask questions on a separate thread.

45% of my portfolio is in the taxable account.

KlangFool

P.S.: This is the strategy that I used for myself. I am "cash flowing" my 2 kid's college education at this moment. It is between 55K to 60K per years for 2 kids.

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Alto Astral
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Re: Saving for college for 2 kids: 3 and 0

Post by Alto Astral » Fri Feb 10, 2017 5:01 pm

KlangFool wrote:
Alto Astral wrote: I don't know; I had not thought about this in those terms. I did some FutureValue calculations on my spreadsheet. Assuming $36K/year in 401k and $11K/year in Roth IRA with growth rates on 6% on the stock portion and 3% on the bond portion. I assumed everything in stocks in the Roth IRA. With this rough calculation and excluding any cash we may have at that time, it brings the net worth to $1.2M in 2030 and $2.4M in 2040. This assumes I've not raided either of these accounts in the college going decade between 2030-2040. I have not considered any 529 contributions either and I assume I will retire in the home I am in.
So in this case it would be 25-50% of net worth. I am not sure if this will make me sleep on the street; but it would surely make great headlines: "Dad of Harvard graduates on the streets" :)
Alto Astral,

<<it brings the net worth to $1.2M in 2030 and $2.4M in 2040. >>

So, if everything went well, you have 1.2M at 2030. And, you can afford to pay 244K/347K. And, you can afford to stop contributing to retirement and "cash flow" the college funding.

What if things not going as well and you have 600K in 2030, are you willing to pay 244K/347K? For many people, the answer will be no.
Of course, not. They can go to a local community college in that case or get a loan. The reason I am thinking about $347K*2 is I think I should be able to afford all/most/part it in 2030.
KlangFool wrote: Keeping the money in Roth/Taxable gives you the flexibility to deal with this question 15 years later.
I agree with you on the Roth; I will contribute it to the max first.
KlangFool wrote: You are not going to spend the money on your kid's college education and be a burden to your children. That is not helping anyone.
KlangFool
If it comes to that, can't I just pay the 10% penalty on earnings and take the money out of the 529? Please don't think I don't value your advice or am being confrontative. I'm a really congenial person who is a novice and trying to learn.

Think of it this way - I am in a bad place with some loans and no 529 plan. My kids get to go to some college and they need to get a loan. They get the loan but need me as a guarantor. Do I tell them they can't go to college because I have my own loans? What if I am going back to school and have my own student loan? True story that I heard on NPR a couple of weeks back. The single mom ended up signing as a guarantor for the loan with no idea if she or her kid will be able to pay that back. If I were to switch places; my logic would tell me do not be a guarantor but my heart will always sign that loan.

Now say I have a 529 that I have not raided yet (due to fear of 10% penalty) and the same thing happens. Wouldn't I be able to pay for their tuition using the 529 instead of saddling myself with another loan as a guarantor?

Or even go back to school using that money once my job is taken over by Artificial Intelligence? :)

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Alto Astral
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Re: Saving for college for 2 kids: 3 and 0

Post by Alto Astral » Fri Feb 10, 2017 5:12 pm

KlangFool wrote:
Alto Astral wrote:
MindTheGAAP wrote: We went with a brokerage account over 529 for a couple of reasons: firstly, we don't get a tax-break on contributions since we live in TX & we don't know what the future of higher education will look like OR if kiddos will get any kind of scholarships if such things exist at the time. For us, we liked the idea of having greater flexibility with the brokerage account.
I thought of this. But wouldn't the earnings be taxable? Even without any deductions (IL allows 3%), the earnings would be significant over 15 years in a Vanguard Stock fund.
Alto Astral,

There are ways to invest tax efficiently in the taxable account. Search this forum or ask questions on a separate thread.
I will do that.
KlangFool wrote: 45% of my portfolio is in the taxable account.
KlangFool
Oh, wow. At this time the $100K cash I have is the only taxable portion of my portfolio. Its around 25%. I've not included my $235K mortgage anywhere - simply because I don't know where to put it :)
KlangFool wrote: P.S.: This is the strategy that I used for myself. I am "cash flowing" my 2 kid's college education at this moment. It is between 55K to 60K per years for 2 kids.
By that you mean just pay through income/taxable accounts, right? I did that for my wife's masters degree and it was $30K for 2 years. I may be able to pull of that $60K (or the inflation adjusted) portion in 15 years, if all goes well. But I am not confident I can do that for a private college

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Re: Saving for college for 2 kids: 3 and 0

Post by NotWhoYouThink » Fri Feb 10, 2017 5:15 pm

Spend the next 15 years hardening your heart so that you don't co-sign a loan for college. Ever. In fact, you would be doing your kids a huge kindness by not co-signing.

Maybe you will be a bazillionaire and can fund their college with your latte money. Maybe they won't want to go to college, and will work a trade or start their own companies. Maybe they will get scholarships, and find a way to fund their own educations. But if you sign a college loan for them, they will need to support you in your old age, and that's a rotten thing to do to a kid on purpose.

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Re: Saving for college for 2 kids: 3 and 0

Post by MindTheGAAP » Fri Feb 10, 2017 5:16 pm

Alto Astral wrote: But I am not confident I can do that for a private college
Why does it need to be private university? I went to one but it was somewhat part of the deal with my folks for paying for it. I don't think I necessarily got a better degree out of it - I think it was just a different experience.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

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Alto Astral
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Re: Saving for college for 2 kids: 3 and 0

Post by Alto Astral » Fri Feb 10, 2017 5:23 pm

KlangFool wrote:
MindTheGAAP wrote:
KlangFool wrote:You are not going to spend the money on your kid's college education and be a burden to your children. That is not helping anyone.
Often understated by many. Doesn't do your kids any good by putting them through University and then needing them to fund your final years... I know if given the choice, I'd rather taken on student loans and not have to cover my folks' retirement.
MindTheGAAP,

Unfortunately, many of my peers did that. And, they hide this fact from their children. They dare and could not tell their children that their children cannot go to private colleges.

KlangFool
That's got to be tough! I can definitely see that tiger-mom thought process. We faced this choice when my wife decided to go back to school a few years back. She got accepted in almost every school she applied to, including University of Chicago. Their tuition was off the roof and she ended up deciding to go to State. Cost me $30K over 2 years and it worked out well for her; decent job prospects and all. I myself got a scholarship more than a decade back so never had to pay tuition and stayed off-campus with roommates - ramen noodle times :)

Given that both of us are working, we just want to see if we can do better for our kids than what we got ourselves (which was a blessing and more than what I deserved)

What percentage of my portfolio would you recommend would be an acceptable amount to spend on kids education? Or in other words, how much should I keep to fully fund our retirement, before we can contribute to our kids education. Some estimates say you need to have saved 11 times your current income to be able to retire modestly.
Last edited by Alto Astral on Fri Feb 10, 2017 5:33 pm, edited 1 time in total.

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Alto Astral
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Re: Saving for college for 2 kids: 3 and 0

Post by Alto Astral » Fri Feb 10, 2017 5:31 pm

NotWhoYouThink wrote:Spend the next 15 years hardening your heart so that you don't co-sign a loan for college. Ever.
Tell me how to do that when your 3 year old daughter says "bunny wabbit", "halloween tweats" and "i love you daddy". Or if your newborn son gives you a right hook and you bet that he will be the next Muhammad Ali. Tell me how I don't sell my kidney to see a smile on them.
NotWhoYouThink wrote:But if you sign a college loan for them, they will need to support you in your old age, and that's a rotten thing to do to a kid on purpose.
Jokes aside, there is a lot of wisdom in this. I can get over them not going to Harvard, but I won't be able to get over them wishing me dead so they don't need to support me in old age.

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Re: Saving for college for 2 kids: 3 and 0

Post by Alto Astral » Fri Feb 10, 2017 5:40 pm

MindTheGAAP wrote:
Alto Astral wrote: But I am not confident I can do that for a private college
Why does it need to be private university? I went to one but it was somewhat part of the deal with my folks for paying for it. I don't think I necessarily got a better degree out of it - I think it was just a different experience.
Hey, who does not want their newborn to go to Harvard? My wallet will dictate what I do in the next 15-18 years, but I keep telling myself that if I start socking away early enough, then they can have a shot. My wife went to a State and that was probably better ranked than where I went. If anything, I thought her coursework was way easier than what I was put through. I agree it may not end up being a better degree but there is always the prestige and the networking. When you are young and don't have any experince to show, a top tier university could definitely open some doors. I don't know - we never went to one. You tell me.

MindTheGAAP
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Re: Saving for college for 2 kids: 3 and 0

Post by MindTheGAAP » Fri Feb 10, 2017 5:45 pm

Alto Astral wrote:
MindTheGAAP wrote:
Alto Astral wrote: But I am not confident I can do that for a private college
Why does it need to be private university? I went to one but it was somewhat part of the deal with my folks for paying for it. I don't think I necessarily got a better degree out of it - I think it was just a different experience.
Hey, who does not want their newborn to go to Harvard? My wallet will dictate what I do in the next 15-18 years, but I keep telling myself that if I start socking away early enough, then they can have a shot. My wife went to a State and that was probably better ranked than where I went. If anything, I thought her coursework was way easier than what I was put through. I agree it may not end up being a better degree but there is always the prestige and the networking. When you are young and don't have any experince to show, a top tier university could definitely open some doors. I don't know - we never went to one. You tell me.
My parents wanted me to go to a Christian-affiliated school since they were forking out. It's one of the better business schools in Texas (it isn't SMU, Baylor, or TCU but it's decent). Honestly, the piece of paper got me into the Big Four and that is what has probably catapulted me more than anything. A&M/ Univ. of Texas/ etc. have strong networks and are State schools.

Agree that Harvard would be nice for the kid for the networking aspect. Depends on what level of private school you're talking about, I suppose! Private university doesn't necessarily mean Ivy League.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

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Re: Saving for college for 2 kids: 3 and 0

Post by Grt2bOutdoors » Fri Feb 10, 2017 5:51 pm

You need 20-25x expenses less Social Security (it will be there, don't worry) to enjoy retirement. Another way to view it is 4 percent of total retirement assets withdrawn annually. Forget about multiples of income, it's expenses that count.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: Saving for college for 2 kids: 3 and 0

Post by KlangFool » Fri Feb 10, 2017 5:59 pm

Alto Astral wrote:
Now say I have a 529 that I have not raided yet (due to fear of 10% penalty) and the same thing happens. Wouldn't I be able to pay for their tuition using the 529 instead of saddling myself with another loan as a guarantor?

Or even go back to school using that money once my job is taken over by Artificial Intelligence? :)
Alto Astral,

There are 2 possible outcomes here:

1) You are doing well that you have 1.2 million. Then, it does not matter whether you have a 529 plan. You can pay for this out of cash flow.

2) You are not doing well and you need the money to feed the family. You will take money out of 529 plan and pay the 10% penalty because you need to feed the family.

<<Now say I have a 529 that I have not raided yet (due to fear of 10% penalty)>>

Between keeping your house and feeding your family, why would the 10% penalty stop you?

KlangFool

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Re: Saving for college for 2 kids: 3 and 0

Post by KlangFool » Fri Feb 10, 2017 6:01 pm

Grt2bOutdoors wrote:You need 20-25x expenses less Social Security (it will be there, don't worry) to enjoy retirement. Another way to view it is 4 percent of total retirement assets withdrawn annually. Forget about multiples of income, it's expenses that count.
Grt2bOutdoors,

<<You need 20-25x expenses less Social Security>>

That only works if a person is fully employed until at least 62 years old. Many of people like me cannot count on that. So, we need 20 to 25X annual expense.

KlangFool

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Re: Saving for college for 2 kids: 3 and 0

Post by KlangFool » Fri Feb 10, 2017 6:02 pm

Alto Astral wrote:
MindTheGAAP wrote:
Alto Astral wrote: But I am not confident I can do that for a private college
Why does it need to be private university? I went to one but it was somewhat part of the deal with my folks for paying for it. I don't think I necessarily got a better degree out of it - I think it was just a different experience.
Hey, who does not want their newborn to go to Harvard?
Alto Astral,

For example, me. It does not worth the money and effort at the undergraduate level.

KlangFool

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Re: Saving for college for 2 kids: 3 and 0

Post by aristotelian » Fri Feb 10, 2017 6:05 pm

MindTheGAAP wrote:
The thought of my kids getting a large chunk of my money at Age 18 or 21 with no strings attached scares me too much. Why not let the compounding happen in a 529 and tie the money to education? You can always take it out if you decide you need it for other purposes.
1. If you have had the appropriate conversations with them, why would this scare you?

2. You can pull it out of a 529 for other purposes... but it is my understanding you'd pay a penalty for doing so, no?
1. Kids are not always mature enough at age 18-21 to make financial decisions with large amounts of money. They may seem mature at age 12 and start hanging out with the wrong crowd at 16. You never know. I was just talking with a coworker who was widowed, daughter blew through her inheritance while dating a bad boyfriend. Why not keep the money under your control until it is needed?

2. That is incorrect. You only incur penalties on the earnings. You can take the contribution back any time. If there is any chance the kid will go to college, the 529 is a no-brainer, in my opinion.

MindTheGAAP
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Re: Saving for college for 2 kids: 3 and 0

Post by MindTheGAAP » Fri Feb 10, 2017 6:14 pm

KlangFool wrote:
Alto Astral wrote:
MindTheGAAP wrote:
Alto Astral wrote: But I am not confident I can do that for a private college
Why does it need to be private university? I went to one but it was somewhat part of the deal with my folks for paying for it. I don't think I necessarily got a better degree out of it - I think it was just a different experience.
Hey, who does not want their newborn to go to Harvard?
Alto Astral,

For example, me. It does not worth the money and effort at the undergraduate level.

KlangFool

Agree. MBA or similar would be worth it for networking.
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute" - William Feather

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Re: Saving for college for 2 kids: 3 and 0

Post by KlangFool » Fri Feb 10, 2017 6:16 pm

Alto Astral wrote:
What percentage of my portfolio would you recommend would be an acceptable amount to spend on kids education? Or in other words, how much should I keep to fully fund our retirement, before we can contribute to our kids education. Some estimates say you need to have saved 11 times your current income to be able to retire modestly.
Alto Astral,

1) How could you decide when you do not know what your portfolio size going to be in 15 years?

2) Why should you decide now? 529 tax benefit is minimal as compared to the taxable account. Furthermore, it affects the financial aid calculation even if you are not doing well in the future.

<< Some estimates say you need to have saved 11 times your current income to be able to retire modestly.>>

3) A person has to survive until retirement age. Can you count on being fully employed all the way up to 62 years old?

KlangFool

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Re: Saving for college for 2 kids: 3 and 0

Post by KlangFool » Fri Feb 10, 2017 6:25 pm

Alto Astral wrote:
MindTheGAAP wrote:
Alto Astral wrote: But I am not confident I can do that for a private college
Why does it need to be private university? I went to one but it was somewhat part of the deal with my folks for paying for it. I don't think I necessarily got a better degree out of it - I think it was just a different experience.
Hey, who does not want their newborn to go to Harvard? My wallet will dictate what I do in the next 15-18 years, but I keep telling myself that if I start socking away early enough, then they can have a shot. My wife went to a State and that was probably better ranked than where I went. If anything, I thought her coursework was way easier than what I was put through. I agree it may not end up being a better degree but there is always the prestige and the networking. When you are young and don't have any experince to show, a top tier university could definitely open some doors. I don't know - we never went to one. You tell me.
Alto Astral,

Is it worth the 120K or more extra? Or, the money could be better spent for your kid to buy their house. Then, they could survive easily.

If your kids are very smart and capable, they could get their employer to sponsor them for a Harvard MBA. If they are not, why waste the extra money?

If you are like one of my family members that "cash flow" all 3 kids through private colleges and gave each one of them 200K before they graduated, then, you do not have to think about whether the money spent is worthwhile. For the rest of us, we have to think about the Return on investment (ROI) of that extra money.

KlangFool

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Re: Saving for college for 2 kids: 3 and 0

Post by CyclingDuo » Fri Feb 10, 2017 7:21 pm

aristotelian wrote:
CyclingDuo wrote: We used UTMA accounts for each child (as well as Coverdell and UGMA Giftrust accounts). I would still do the UTMA accounts today if starting out as I like the flexibility of them.

Contribute early and often to let the power of compounding and time work its magic.
The thought of my kids getting a large chunk of my money at Age 18 or 21 with no strings attached scares me too much. Why not let the compounding happen in a 529 and tie the money to education? You can always take it out if you decide you need it for other purposes.
Because the UTMA is much more flexible (you can use the funds for anything associated with children along the way with no penalties - outside of paying the cap gains). Wedding, car, summer camps, clothing, sports, therapy ( :D ). We were very open with our children about it and used it along the way to inform them about investing the past 21-23 years, what stocks they had in their UTMA accounts, and what investing is all about. Now that the transition has taken place - it's in their hands, but they both still want me authorized for their brokerage accounts to help them going forward.

True, at age 21 it is their money - no questions asked. However, I never had any worries along the way about them blowing it on whatever. The accounts did what they were intended to do - and what they were told they were designed to do - which was to pay for both of their college degrees. They got the leftovers after all tuition and fees were paid thanks to some wonderful returns throughout the years (all in individual stocks as I chose to do a diverse basket of 10 stocks for each).

The UGMA mutual fund gift trust investments I started when they were born were locked in for a 25 year period (can't get the money out without penalty) have not done so well. Neither have the and Coverdell accounts. Luckily, I put the bare minimum in for both to open the accounts. The hope was for a great return on both, but it did not materialize.
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Re: Saving for college for 2 kids: 3 and 0

Post by WildBill » Fri Feb 10, 2017 7:23 pm

Howdy

Your plan looks fine. As long as you are making substantial/maxing out contributions to your retirement accounts and otherwise conducting yourselves prudently additional funding in a 529 plan is definitely suitable.

There are lots of ways to fund college, it is a long time from now, and many things can change. What is important is to have a plan and start executing. Plans once in motion can always be adjusted. Yours looks fine.

Our experience- I opened Coverdell accounts for our sons when they were born and opened 529s when they became available. We saved considerable amounts in the 529 as we went as it became clear that they were students who would benefit from the best possible universities.

We did not stint on other investing, and fully funded retirement accounts and invested aggressively in taxable accounts. This requires living substantially below your means. So what? We have a strong bias to providing the best possible education for our sons and not burdening their lives with student loans. Matter of priorities. They have done their part with academic performance, strong work ethic and earnings from summer internships and outside work.

I am now retired and the 529s will pay full freight for 2 Ivy League schools, and we will not be living on the streets. We are not particularly smart or capable and if we can do it it can certainly be done.

These threads about funding college sometimes seem to get off point, with debates about relative merits of universities and contingency planning for disasters. Not sure why. It's not that hard.

Good luck to you and the classes of 2038 and 2041!

W B
"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid

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Re: Saving for college for 2 kids: 3 and 0

Post by veindoc » Fri Feb 10, 2017 7:24 pm

http://www.bayalisistheanswer.com/hitch ... erfunding/

An alternative view. You can superfund a 529 by gifting each kid 28k (14k from each spouse) a year. The theory is that you have more time to allow the money to grow taxfree. Don't think you have the money? You have nearly two years of expenses in an efund. You could use half of it to jumpstart the funds still leaving yourself a sizeable fund.

With regard to an Ivy League education, I can say from experience it helps...a lot.

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Re: Saving for college for 2 kids: 3 and 0

Post by aristotelian » Fri Feb 10, 2017 8:30 pm

CyclingDuo wrote:
Because the UTMA is much more flexible (you can use the funds for anything associated with children along the way with no penalties - outside of paying the cap gains). Wedding, car, summer camps, clothing, sports, therapy ( :D ). We were very open with our children about it and used it along the way to inform them about investing the past 21-23 years, what stocks they had in their UTMA accounts, and what investing is all about. Now that the transition has taken place - it's in their hands, but they both still want me authorized for their brokerage accounts to help them going forward.

True, at age 21 it is their money - no questions asked. However, I never had any worries along the way about them blowing it on whatever. The accounts did what they were intended to do - and what they were told they were designed to do - which was to pay for both of their college degrees. They got the leftovers after all tuition and fees were paid thanks to some wonderful returns throughout the years (all in individual stocks as I chose to do a diverse basket of 10 stocks for each).
That is lovely, and I hope to do the same for my kids when they are of age. Hopefully they are still good, well adjusted kids at that time. Until then, I don't see any downside to keeping the money in my name until they need it and show that they are mature enough to handle it. I have certainly heard many stories where it did not turn out that way.

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Alto Astral
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Re: Saving for college for 2 kids: 3 and 0

Post by Alto Astral » Fri Feb 10, 2017 10:58 pm

WildBill wrote:Howdy
Howdy! Nobody has greeted me like that since I left TX after school more than a decade back. Sure sounds refreshing!
WildBill wrote: We saved considerable amounts in the 529 as we went as it became clear that they were students who would benefit from the best possible universities.
This may be my paternal bias, but I feel my 3 year-old daughter is one smart cookie. I totally see what you say here. The goal is not that she become some cardiac surgeon and make a ton. But if she ends up teaching in a university or research or public service; it will be backed by the best possible/affordable universities. If you don't mind me asking; at what age of your kids did you make this decision?
WildBill wrote: We did not stint on other investing, and fully funded retirement accounts and invested aggressively in taxable accounts. This requires living substantially below your means. So what? We have a strong bias to providing the best possible education for our sons and not burdening their lives with student loans. Matter of priorities. They have done their part with academic performance, strong work ethic and earnings from summer internships and outside work.
Amen to this. I spend nothing on myself. Not even the cheapest coffee. (Okay, maybe the cheapest vodka bottle every 2 months) And I am fine with it. Been a spartan and wife shares the frugal lifestyle. We only "splurge" on organic grocery. I've read too much about irradiation, hormones and pesticides to spook me out.
WildBill wrote: I am now retired and the 529s will pay full freight for 2 Ivy League schools, and we will not be living on the streets. We are not particularly smart or capable and if we can do it it can certainly be done.
I am so happy to hear this. My parents were really lower middle-class. No car. No vacations. No fancy stuff. But my sister is a doctor and I am a bl@@dy (forgive me lord) software engineer. I really want to go above and beyond for my kids like they did for me.
WildBill wrote: These threads about funding college sometimes seem to get off point, with debates about relative merits of universities and contingency planning for disasters. Not sure why. It's not that hard.

Good luck to you and the classes of 2038 and 2041!
W B
Thanks!

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Alto Astral
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Re: Saving for college for 2 kids: 3 and 0

Post by Alto Astral » Fri Feb 10, 2017 11:00 pm

aristotelian wrote:
CyclingDuo wrote:
Because the UTMA is much more flexible (you can use the funds for anything associated with children along the way with no penalties - outside of paying the cap gains). Wedding, car, summer camps, clothing, sports, therapy ( :D ). We were very open with our children about it and used it along the way to inform them about investing the past 21-23 years, what stocks they had in their UTMA accounts, and what investing is all about. Now that the transition has taken place - it's in their hands, but they both still want me authorized for their brokerage accounts to help them going forward.

True, at age 21 it is their money - no questions asked. However, I never had any worries along the way about them blowing it on whatever. The accounts did what they were intended to do - and what they were told they were designed to do - which was to pay for both of their college degrees. They got the leftovers after all tuition and fees were paid thanks to some wonderful returns throughout the years (all in individual stocks as I chose to do a diverse basket of 10 stocks for each).
That is lovely, and I hope to do the same for my kids when they are of age. Hopefully they are still good, well adjusted kids at that time. Until then, I don't see any downside to keeping the money in my name until they need it and show that they are mature enough to handle it. I have certainly heard many stories where it did not turn out that way.
I don't know. I've heard too many new stories about opiod epidemics. Happens to really good people; even nurses. There is a good podcast called "Embedded" from NPR on this.

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Alto Astral
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Re: Saving for college for 2 kids: 3 and 0

Post by Alto Astral » Fri Feb 10, 2017 11:06 pm

mrsytf wrote:http://www.bayalisistheanswer.com/hitch ... erfunding/

An alternative view. You can superfund a 529 by gifting each kid 28k (14k from each spouse) a year. The theory is that you have more time to allow the money to grow taxfree. Don't think you have the money? You have nearly two years of expenses in an efund. You could use half of it to jumpstart the funds still leaving yourself a sizeable fund.
You got a good point. I am superfunding my Backdoor Roth IRA this year with 22K. But yes, I can park some of that extra either in a 529 or taxable fund.
mrsytf wrote:With regard to an Ivy League education, I can say from experience it helps...a lot.
That's what I thought. Good to hear from someone experienced. The only Ivy Leaguers I've met are CEOs so I can't really have water cooler type talks with them.
Last edited by Alto Astral on Fri Feb 10, 2017 11:39 pm, edited 1 time in total.

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Re: Saving for college for 2 kids: 3 and 0

Post by Alto Astral » Fri Feb 10, 2017 11:18 pm

KlangFool wrote:
Alto Astral wrote:
MindTheGAAP wrote:
Alto Astral wrote: But I am not confident I can do that for a private college
Why does it need to be private university? I went to one but it was somewhat part of the deal with my folks for paying for it. I don't think I necessarily got a better degree out of it - I think it was just a different experience.
Hey, who does not want their newborn to go to Harvard? My wallet will dictate what I do in the next 15-18 years, but I keep telling myself that if I start socking away early enough, then they can have a shot. My wife went to a State and that was probably better ranked than where I went. If anything, I thought her coursework was way easier than what I was put through. I agree it may not end up being a better degree but there is always the prestige and the networking. When you are young and don't have any experince to show, a top tier university could definitely open some doors. I don't know - we never went to one. You tell me.
Alto Astral,

Is it worth the 120K or more extra? Or, the money could be better spent for your kid to buy their house. Then, they could survive easily.
I don't know Klang. Maybe that's the price of Ivy League. Maybe its 1/2 million. I bought my house and I did not go to Ivy League. If I just wanted to survive or my kids to survive, then this entire post is moot. I am really taking a risk here, much like my 401ks - who knows that meltdown may happen in 30 years or our country will be plagued with hyperinflation or some financial crisis.
KlangFool wrote: If your kids are very smart and capable, they could get their employer to sponsor them for a Harvard MBA. If they are not, why waste the extra money?
Not Masters, only undergrad in Ivy League. Masters is on them. If I have any money left over, then sure, yes. I can go to a spartan retirement home in Illinois if it lets them retire to a fancier retirement home in Florida :) And hopefully they pay it forward and my grandkids end up freaking millionaires who do not worry about retirement. If that's the last thought I have when I go to my final sleep, I will consider a life well lived.
KlangFool wrote: If you are like one of my family members that "cash flow" all 3 kids through private colleges and gave each one of them 200K before they graduated, then, you do not have to think about whether the money spent is worthwhile. For the rest of us, we have to think about the Return on investment (ROI) of that extra money.

KlangFool
I am definitely not like that family member. I am just surviving day-to-day. If either of us is not fully employed anytime during the next 30 years, that would definitely throw a wrench in the plans and all bets are off. But that won't keep me from dreaming about keeping up with the Jones's - at least when it comes to my kids education.

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Re: Saving for college for 2 kids: 3 and 0

Post by willthrill81 » Fri Feb 10, 2017 11:19 pm

Alto Astral wrote:
KlangFool wrote:
MindTheGAAP wrote:
KlangFool wrote:You are not going to spend the money on your kid's college education and be a burden to your children. That is not helping anyone.
Often understated by many. Doesn't do your kids any good by putting them through University and then needing them to fund your final years... I know if given the choice, I'd rather taken on student loans and not have to cover my folks' retirement.
MindTheGAAP,

Unfortunately, many of my peers did that. And, they hide this fact from their children. They dare and could not tell their children that their children cannot go to private colleges.

KlangFool
That's got to be tough! I can definitely see that tiger-mom thought process. We faced this choice when my wife decided to go back to school a few years back. She got accepted in almost every school she applied to, including University of Chicago. Their tuition was off the roof and she ended up deciding to go to State. Cost me $30K over 2 years and it worked out well for her; decent job prospects and all. I myself got a scholarship more than a decade back so never had to pay tuition and stayed off-campus with roommates - ramen noodle times :)

Given that both of us are working, we just want to see if we can do better for our kids than what we got ourselves (which was a blessing and more than what I deserved)
Having been on both sides of this issue, I can say that I firmly believe that parents' first duty is to provide for their own retirement. Helping your children through college only to need help from them later doesn't benefit anyone.

Here's a case in point:
"It’s no surprise then that about one in four Americans (with parents ages 65 and older) is helping a parent with his or her affairs, offering financial help or caring after them."
https://blog.mint.com/family/family-mat ... er-012517/

That should make parents think twice before even considering funding their kids' college when their own retirement isn't secure.

Further, despite being a professor myself, I don't believe that most of these 'big name' universities are worth the burdensome tuition costs. Almost wherever they go, students get out of college what they put into it.
Alto Astral wrote:What percentage of my portfolio would you recommend would be an acceptable amount to spend on kids education? Or in other words, how much should I keep to fully fund our retirement, before we can contribute to our kids education. Some estimates say you need to have saved 11 times your current income to be able to retire modestly.
You need 25-35 times your desired income in retirement savings in order to have a solid chance (>95%) of retiring without going broke. Granted, you probably won't need the income you have now, but that number is far bigger than most non-investors think it is.

With a 9% withdrawal rate (which you would logically need with only 11 times your desired income), your odds of not running out of money over a 30 year retirement are only about 7%.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Saving for college for 2 kids: 3 and 0

Post by Alto Astral » Fri Feb 10, 2017 11:23 pm

KlangFool wrote:
Alto Astral wrote:
What percentage of my portfolio would you recommend would be an acceptable amount to spend on kids education? Or in other words, how much should I keep to fully fund our retirement, before we can contribute to our kids education. Some estimates say you need to have saved 11 times your current income to be able to retire modestly.
Alto Astral,

1) How could you decide when you do not know what your portfolio size going to be in 15 years?

I agree, I can't. But I have to start somewhere.
KlangFool wrote: 2) Why should you decide now? 529 tax benefit is minimal as compared to the taxable account. Furthermore, it affects the financial aid calculation even if you are not doing well in the future.

I agree with the financial aid portion. But minimal tax benefit? I really need to follow up on your advice about tax efficient investing in a taxable account. Let me write that post up
KlangFool wrote: << Some estimates say you need to have saved 11 times your current income to be able to retire modestly.>>


3) A person has to survive until retirement age. Can you count on being fully employed all the way up to 62 years old?
KlangFool
Agree 100% on this. I can't count on us both being fully employed even tomorrow.

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Re: Saving for college for 2 kids: 3 and 0

Post by Alto Astral » Fri Feb 10, 2017 11:28 pm

Grt2bOutdoors wrote:You need 20-25x expenses less Social Security (it will be there, don't worry) to enjoy retirement. Another way to view it is 4 percent of total retirement assets withdrawn annually. Forget about multiples of income, it's expenses that count.
Aha! That's the number I was looking for. Makes sense. I wasn't sure what number I should target. Does that factor in inflation too?

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Re: Saving for college for 2 kids: 3 and 0

Post by Alto Astral » Fri Feb 10, 2017 11:34 pm

MindTheGAAP wrote:
KlangFool wrote:
Alto Astral wrote:
MindTheGAAP wrote:
Alto Astral wrote: But I am not confident I can do that for a private college
Why does it need to be private university? I went to one but it was somewhat part of the deal with my folks for paying for it. I don't think I necessarily got a better degree out of it - I think it was just a different experience.
Hey, who does not want their newborn to go to Harvard?
Alto Astral,

For example, me. It does not worth the money and effort at the undergraduate level.

KlangFool

Agree. MBA or similar would be worth it for networking.
Isn't undergrad the foundation though? I bet State+Harvard will be great. But MIT+Harvard? Whoa!

I am not at all trying to sound cocky here; this is all hypothetical and a couple of decades away. But I always felt the undergrad was on me and then the masters was on them. Besides the Harvard classmates have an average 7 year experience (if memory serves me right) So they would be in a better financial position (since they hopefully don't have any student debt due to a crazy dad who planned a whacky idea on a drunk Friday night)

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