Best Options/Strategies for Funding College in 18 years

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justsomeguy2018
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Best Options/Strategies for Funding College in 18 years

Post by justsomeguy2018 » Thu Jul 04, 2019 3:31 pm

What are recommendations for starting to fund child's college (start date in 18-19 years)?

Current location = Texas.

Current tax rate = 24% federal, 0% state. Will be in the 33% bracket if and when the current tax cuts expire in 2026.

My thinking was to start a 529 plan thru Vanguard (heard Nevada's was good?). But here are some questions I am struggling with.

How much to fund, and when to fund (e.g. start with a large lump sum ($10,000?) or DCA each month?

How much to invest per year, not knowing what may happen with scholarships/financial aid/school location/school cost/school dropout/additional children, etc. And again whether to DCA or lump sum per year.

Is it best to diversify into different strategies? (e.g. some in 529, some in tax free muni bonds or taxable account, uniform gift to minors, etc.)

This one seems tricky to me given all the options and unknowns. Looking for advice and recommendations.

FBanks
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Re: Best Options/Strategies for Funding College in 18 years

Post by FBanks » Thu Jul 04, 2019 4:45 pm

Go to savingforcollege.com and play around with the calculators to get a sense of what private/public college will cost in 18 years. Then decide how much you want to cover out of pocket. Then figure out how much you need to save annually to reach that number in 18 years. Check your state's 529 plans. If they give you a tax break, put the money there. If not, just stick it in another state's 529 or a taxable brokerage account for ultimate flexibility. (Vanguard's has solid options)

For example, we have a 2 and 5 year old. If they go to Yale like their father, it'll cost $500k total in 13 years, per child. They could also go to the state flagship uni like me for $300k total, per child. We're high income, so we wouldn't qualify for need based aid and Ivies don't give merit. We use our state's 529 for the tax break and save $10k per child each year. This will be more than enough for state school and about 80% for private. We committed to saving this much because we also max out all our retirement accounts first (FSA HSA ROTH IRA NQDC). If we made less, we would contribute only what was available after saving for retirement. We also expect our kids to save money and earn merit scholarships to help cover the costs. They need skin in the game.

FBanks
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Re: Best Options/Strategies for Funding College in 18 years

Post by FBanks » Thu Jul 04, 2019 4:48 pm

Also, look up choosefi and whitecoat investor podcasts. They both did great episodes on strategies for saving/paying for college.

livesoft
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Re: Best Options/Strategies for Funding College in 18 years

Post by livesoft » Thu Jul 04, 2019 4:57 pm

What to invest in: The most aggressive age-based option. Done. Every 529 plan has such a thing.

How much to invest: Nothing until you have maxed out contributions to every possible other tax-advantaged account that you have access to. Otherwise, at least the state income tax benefit level. Texas has no state income taxes. Texas has inexpensive college expenses, so one doesn't really need much, so $5,000 a year should work. Besides at your income level, you could pay cash from paychecks every year anyways.

Also remember that a student does not use up 4-years of college expenses the first day of classes. It takes 3 or 4 years to get through and maybe more.
Last edited by livesoft on Thu Jul 04, 2019 5:17 pm, edited 1 time in total.
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Wiggums
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Re: Best Options/Strategies for Funding College in 18 years

Post by Wiggums » Thu Jul 04, 2019 5:14 pm

I agree with the previous responses. A lot of good suggestions there.

We started saving for college when our children were still in diapers. We setup an automated weekly transfers of money for each child into a balanced fund. A balanced fund is not really the best option but that is what we choose. we projected what college would cost in the future and how much we were willing to pay for. Another challenge is what school will accept your student. Even with a partial scholarship, we spend money on summer school classes, dorm insurance, transportation and other small items. But it all adds up. My son is in a four year engineering program that really takes 4.5 to 5 years to complete due to required internships. We knew this about a year prior to attending the college.

There is nothing wrong with funding less that 100%. It depends on your ability to save, your families philosophy and your child’s ability to manage 18 credits and a job if that is required.

I hope this response helps. Good luck to you...

StealthRabbit
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Re: Best Options/Strategies for Funding College in 18 years

Post by StealthRabbit » Thu Jul 04, 2019 6:19 pm

Consider financially equipping your kids to 'self-pay'. Start today

Ours had over $100k of available funds to use for college by age 18.

Started them in Roths at age 12
Built their own homes in Jr High
Always worked the 'family businesses, and even started their own. (Pre age 16, when they went to college for free)

or... other options.. There are USA and international FREE options.
https://www.valuecolleges.com/internati ... education/
https://www.student.com/articles/countr ... ee-europe/

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Watty
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Re: Best Options/Strategies for Funding College in 18 years

Post by Watty » Thu Jul 04, 2019 7:09 pm

justsomeguy2018 wrote:
Thu Jul 04, 2019 3:31 pm
....College in 18 years

Is it best to diversify into different strategies?
One thing to remember in your planning is that if your kid will start college in 18 years you do not need to have all the money ready on their first day of college, you have about 22 years until they graduate.

Just for brainstorming one possible piece of the puzzle to consider is getting your mortage paid off by the time your kid is in college. You can then use the freed up cash flow to pay for college. That might not always be possible but if you only have 23 years left on the mortage then some prepayments could get the house paid off before they graduate. Refinancing to a new 15 year mortage would also be an option to take a look at if that would lower your interest rate a lot.

nix4me
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Re: Best Options/Strategies for Funding College in 18 years

Post by nix4me » Thu Jul 04, 2019 8:01 pm

$2000 per year into a ESA in s&p 500 index fund. 18 years later (couple months ago) we moved it into prime money market. She starts in 2 months. Our plan worked flawlessly.

Topic Author
justsomeguy2018
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Re: Best Options/Strategies for Funding College in 18 years

Post by justsomeguy2018 » Sun Jul 07, 2019 2:04 pm

nix4me wrote:
Thu Jul 04, 2019 8:01 pm
$2000 per year into a ESA in s&p 500 index fund. 18 years later (couple months ago) we moved it into prime money market. She starts in 2 months. Our plan worked flawlessly.
Did you do lump sum $2000 each year?

What is ESA S&P 500 index fund?

BernardShakey
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Re: Best Options/Strategies for Funding College in 18 years

Post by BernardShakey » Sun Jul 07, 2019 11:58 pm

I think a low cost 529 plan with the state tax deduction if yours provides that would be a good way to go. I've done that with mine, even without the deduction, and it has turned out pretty well. Started when they were infants with monthly contributions. As my salary increased, we ramped up the contributions. I was probably a little too conservative in hindsight but it's not something you want to be real risky with. I look at my statements every once in a while now and I'm amazed at how much earnings have accumulated tax free. Start early, go low cost, and keep at it! Good luck!

psy1
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Re: Best Options/Strategies for Funding College in 18 years

Post by psy1 » Mon Jul 08, 2019 1:11 am

As above, max out all tax deferred retirement accounts first. Then consider with your wife how much of what kind of education you will pay for. For example, again as stated above, you might decide to pay for the max (full pay at a private school) or less (state school, two years at local and then 2 years transfer). Also, keep in mind that the minority of kids finish college in 4 years. In some places, the minority of kids finish in 6 years!

In any case, a 529 plan is a good place to start. I like the Upromise 529. If you are conscientious and do a lot of online shopping you can significantly add to the savings. If you have relatives, they can also link their cards to the account. The downside is that they must remember to shop through the portal. In my experience few do and then reminding them feels like begging. But it is still a nice way for relatives to participate.

In our 529 account, I have been much more aggressive than official websites recommend. As a result of that and returns, our child will be a junior this year at a state flagship university, having lived in dorms and now off campus, and her account is down $10,000 after two years plus one summer. So she has some wiggle room to change her major, take a 5th year, etc.

In any case, I would front load a 529. When your child is 16 years old and looking ahead to college applications, you will not regret the foresight.

As an aside: Our 529 is probably over-funded. I told our daughter when she was applying for college that it was her money. I gave her a spreadsheet showing the possible outcomes in future decades if she used the money to go to: Alabama on a full tuition merit scholarship; state university; private full pay university. Play that out 20-30 years and the difference is vast. The only way for private school to pay off would be for it to confer some sort of "privilege" which all high school seniors nowadays denounce (while striving for it of course). In short, by going to a state school and finishing in 4 years, she would have enough left in her 529 to pay for her children's future education. We have no regrets about "over-funding."

ncbill
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Re: Best Options/Strategies for Funding College in 18 years

Post by ncbill » Mon Jul 08, 2019 9:08 am

psy1 wrote:
Mon Jul 08, 2019 1:11 am
As above, max out all tax deferred retirement accounts first. Then consider with your wife how much of what kind of education you will pay for. For example, again as stated above, you might decide to pay for the max (full pay at a private school) or less (state school, two years at local and then 2 years transfer). Also, keep in mind that the minority of kids finish college in 4 years. In some places, the minority of kids finish in 6 years!
Ditto.

We were fortunate to be able to pay for in-state public school.

But our kids picked private schools, using ROTC scholarship to cover tuition/fees.

IMHO not enough people consider military money to pay for college...ROTC scholarship, National Guard (in many states that pays tuition/fees at in-state public schools), or GI Bill.

Or the service academies, which one of mine picked after a year of college (had to re-apply)...guaranteed employment on active duty coming out of those.

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