where does kids college funds come into play in my plan?

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dred pirate
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where does kids college funds come into play in my plan?

Post by dred pirate » Tue Aug 20, 2019 3:16 pm

Age 41
Wife 37
Gross Income 215k
Debt - 36k Student Loans at 1.8% - have been paying the minimum since graduation until the last few years, minimum payment $422, I pay around $1500 a month
no auto debt
home loan 213k at 4.25% - PITI ~1400 a month (120k equity)
max out 403b and roth ira for spouse and I. Also max out my HSA (spouse doesn't have option for one)
retirement accounts (403b, Roth IRA) = 500k
taxable account - 190k (2/3 in investments, 1/3 in liquid cash accounts)
first(likely only) child is 1 month old.
Goal is retire at age 60.
after everything is said and done at the end of the month we have 1-1.5k or so left over (including extra payments to student loan and roth contributions.)

My questions (and this is as much philosophy vs the "right thing" to do financially.

For background - I had to pay my own way through 8 years of college (luckily had decent scholarships/grants) but grad school kicked my butt financially. Graduated with 120k student loans. Wife had her 7 years of schooling paid for by father. So we have different backgrounds. I want to help, obviously I can afford to. But what is the best way? (assuming she even goes to college, which is long ways off).

Housing - a good chance of us wanting to upgrade in ~5 years or so.

Ideas:

1. Pay of my student loans of ASAP, then worry about her college fund when they are paid off in a couple of years.
2. Continue to pay an extra 1 - 1.5k a month towards my student loans, then open a 529 with a couple hundred a month and let it grow. I am in NC so I don't get any state tax advantages.
3. stop extra payments to my student loan and invest the difference (I personally don't like this idea and likely won't consider it as I want to get that loan off my books even though it is a low interest rate).
4. Any other ideas? Save for college outside of a 529?

thanks

StealthRabbit
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Re: where does kids college funds come into play in my plan?

Post by StealthRabbit » Tue Aug 20, 2019 3:33 pm

Is there a payoff date / Balloon on your 1.8% Student loans? (Might be worth keeping)

I take a different stance on College Funding. (student participation to help with accountability / responsibility, parent helps AFTER graduation (if necessary, and when interest starts)).
1) You could set aside a $10-20k growth investment now / early and get a good start on paying / helping with college. Time is on your side.
2) Keep 'self funding' options available and visible for students
a) (Our state offers free FT college instead of High School),
b) several states offer free tuition or reimbursements with sustained GPA,
c) Some USA colleges are free https://www.bestcollegereviews.org/feat ... -for-free/
d) 20+ international colleges are free for USA students who qualify,

3) Employer pays (My employer bought 5 U degrees for me (I worked nights and did college during days). Even Walmart and Taco Bell does this now)
4) Military
5) Scholarships / Intern / On-The-Job
6) As soon as kid is working, "Match their Wages into Roth IRA" Mine started at age 12 (Had $20+k by age 18), but age 8 would have been better.

Topic Author
dred pirate
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Re: where does kids college funds come into play in my plan?

Post by dred pirate » Tue Aug 20, 2019 3:59 pm

I agree with sharing responsibility - A child definitely needs to have some "skin in the game" in order to apprecite - IMHO. But I also can't sit here with a comfortable salary and see my child straddled with debt - my parents where of low-income/working class, and simply were unable to to afford to help. I love the idea of a child "roth" account - I started to work when I was 14 - what type of job does a 12 year old due? or did you pay them for doing chores, etc around the house?

Broken Man 1999
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Re: where does kids college funds come into play in my plan?

Post by Broken Man 1999 » Tue Aug 20, 2019 4:14 pm

FWIW a few companies are helping pay college expenses, no idea how much. I do know there are a lot of college age folks at Chik-fil-a working the drive-thru lines. They have stated that there is a benefit. Also I believe Starbuck's helps their employees with tuition.

MegaCorp paid for all but a small portion of my undergraduate and graduate degrees. DW also enjoyed tuition payments from MegaCorp for her degree. It was a great benefit. Nice thing was the director over the department had to approve the expenses, so upper management knew an employee was trying to better their career path through education.

Broken Man 1999

ETA: Although my daughters worked during summers and and some during time they were attending college, however, they were told their jobs were OK, but their primary job was to take class loads that would see them graduate in 4 years, and it was OK NOT to work if it affected their grades.

I don't think it matters if students have skin in the game or not, I see college as their most important job. Others feel differently, and that is OK. I think having skin in the game is overated, but, that is just me.
Last edited by Broken Man 1999 on Tue Aug 20, 2019 4:29 pm, edited 2 times in total.
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

finite_difference
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Re: where does kids college funds come into play in my plan?

Post by finite_difference » Tue Aug 20, 2019 4:27 pm

-No-cost refinance your home loan to 3.5-3.75% or so? I’d think you could shave a half point off at least for no-cost these days.
-Put $500/month toward a 529. Increase each year at least to compensate for inflation. I’d go 100% stock.
-Rest to fund Roth IRA/401k.

$6k/year*18 years = $108k not including growth. Should fund a good chunk of college if not all. The rest can be funded using student loans (paid by you if you can afford it) or cash flowed.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh

KingRiggs
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Re: where does kids college funds come into play in my plan?

Post by KingRiggs » Tue Aug 20, 2019 4:34 pm

My parents paid for 4 years of undergraduate and 4 years of medical education. I graduated debt-free. Even though I had no "skin in the game", believe me I appreciated their sacrifice and I thank them to this day.

I now have the means to pay for my children's educations and see them debt-free into the working world. I view it as my main responsibility as a parent. That being said, the kids know that my policy is that, as soon as I feel they aren't making progress towards their life goals, the support ends.
Advice = noun | Advise = verb | | Roth, not ROTH

megabad
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Re: where does kids college funds come into play in my plan?

Post by megabad » Tue Aug 20, 2019 5:13 pm

dred pirate wrote:
Tue Aug 20, 2019 3:16 pm
Also max out my HSA (spouse doesn't have option for one)
I can't tell from this line what you mean exactly but you might still be able to contribute up to the family maximum so I would do this first if possible.

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MaryO
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Re: where does kids college funds come into play in my plan?

Post by MaryO » Tue Aug 20, 2019 5:18 pm

Congratulations on the new addition!

Your comfortable income means your child will not be eligible for any need-based financial aid and will not be offered a federal subsidized student loan. (Yes, it's a long ways off and rules may change.....) So the day her student loan is dispersed, she is being charged interest. It can be deferred and added to the loan principle at graduation. Low income students have the interest paid for them while still in school. Huge advantage! When my daughter applied for a loan her interest rate was double that of the subsidized students. Almost 7%. Now both types of loans are 4.5%, I believe. We thought the 529 was great until it lost almost half its value the year she was applying to schools in 2008. We were drawing down before it had a chance to recover.

You mention philosophy, and this is important not just for exploring how to pay for college, but deciding which schools to apply to. In general, the more elite a school is, the less likely that it will offer any merit $$, regardless of how sharp your child is. Most merit money is actually tied to need. It's confusing and exasperating. You have to give your child a clear statement of what you are willing to spend long before college research begins. You might have firmly held beliefs about why one school is worth $70K/yr while another isn't worth attending even for free. Be open with her right from the start.

At any rate, I would suggest you keep this adage in mind. (We didn't. Dumb) You can always borrow to fund your child's education, but you can't borrow to fund your retirement. And retirement funds aren't part of the financial aid calculus, so that's another reason many people sock it away in an IRA.

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dogagility
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Re: where does kids college funds come into play in my plan?

Post by dogagility » Tue Aug 20, 2019 5:25 pm

Broken Man 1999 wrote:
Tue Aug 20, 2019 4:14 pm
Although my daughters worked during summers and and some during time they were attending college, however, they were told their jobs were OK, but their primary job was to take class loads that would see them graduate in 4 years, and it was OK NOT to work if it affected their grades.

I don't think it matters if students have skin in the game or not, I see college as their most important job. Others feel differently, and that is OK. I think having skin in the game is overated, but, that is just me.
+1. My kids' skin in the game was working hard at schoolwork so that their academic achievement would open doors for them after undergrad. If this doesn't motivate them, having debt won't either (IMO).
Taking "risk" since 1995.

Grt2bOutdoors
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Re: where does kids college funds come into play in my plan?

Post by Grt2bOutdoors » Tue Aug 20, 2019 5:38 pm

1. Start by showing your daughter your framed degrees and say when you are older, you'll be going to college. Set the expectation early. You think it's a long way off, time will go by faster than you think. Ask me how I know.
2. You have the excess funds, you should open a 529 plan now. Aim to save 2-3 years worth of state flagship university costs in the 529 plan. Use an age-based allocation plan - generally recommend either an aggressive or moderate plan.
3. Stay the course with the plan - the account value will not go up in a straight line, but the earlier you start the greater the chances of you realizing the benefits of compounding on a tax free basis.
4. The kid already has skin in the game - just look at all the competition around her, here and globally. IMO, I don't understand especially from those who've had to overcome substantial obstacles and succeeded, why they would want their offspring to experience the same. A learning experience? Life is a learning experience and its that much more difficult when obstacles are in the way. If you want your daughter to show appreciation, your day to day examples will provide many opportunities for that.
5. Given your current income, its likely your child will receive no financial aid other than loans. Think about that - you are okay with your child having less opportunities because they have non-dischargeable priorities to others. "The borrower is slave to the lender" Proverbs 22:7
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Topic Author
dred pirate
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Re: where does kids college funds come into play in my plan?

Post by dred pirate » Tue Aug 20, 2019 6:02 pm

thanks all - another questions - is there any reason I should use North Carolina's 529 plan over another state's plans? If I was to move to any state, it likely would be Iowa (home state)

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Wiggums
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Re: where does kids college funds come into play in my plan?

Post by Wiggums » Tue Aug 20, 2019 6:26 pm

dogagility wrote:
Tue Aug 20, 2019 5:25 pm
Broken Man 1999 wrote:
Tue Aug 20, 2019 4:14 pm
Although my daughters worked during summers and and some during time they were attending college, however, they were told their jobs were OK, but their primary job was to take class loads that would see them graduate in 4 years, and it was OK NOT to work if it affected their grades.

I don't think it matters if students have skin in the game or not, I see college as their most important job. Others feel differently, and that is OK. I think having skin in the game is overated, but, that is just me.
+1. My kids' skin in the game was working hard at schoolwork so that their academic achievement would open doors for them after undergrad. If this doesn't motivate them, having debt won't either (IMO).
That is our philosophy too. I see my sons friends struggling over tuition rather than academics. But it’s much more difficult to get the degree when you first have to raise the cash.

My hats off to the OP Who was able to complete his schooling on his own. What you achieved is not easy and takes a lot of drive.

Topic Author
dred pirate
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Re: where does kids college funds come into play in my plan?

Post by dred pirate » Wed Aug 21, 2019 12:52 pm

Wiggums wrote:
Tue Aug 20, 2019 6:26 pm
dogagility wrote:
Tue Aug 20, 2019 5:25 pm
Broken Man 1999 wrote:
Tue Aug 20, 2019 4:14 pm
Although my daughters worked during summers and and some during time they were attending college, however, they were told their jobs were OK, but their primary job was to take class loads that would see them graduate in 4 years, and it was OK NOT to work if it affected their grades.

I don't think it matters if students have skin in the game or not, I see college as their most important job. Others feel differently, and that is OK. I think having skin in the game is overated, but, that is just me.
+1. My kids' skin in the game was working hard at schoolwork so that their academic achievement would open doors for them after undergrad. If this doesn't motivate them, having debt won't either (IMO).
That is our philosophy too. I see my sons friends struggling over tuition rather than academics. But it’s much more difficult to get the degree when you first have to raise the cash.

My hats off to the OP Who was able to complete his schooling on his own. What you achieved is not easy and takes a lot of drive.
thanks - I do some clinical teaching for two local university students (pharmacy) when they are on rotation- and also employ 5 interns. I worked 30 hours a week during school and 60 during breaks - and still was able to maintain excellent grades, so I guess I am a little disillusioned when I see students complain that they can't work 8 hours a week and still do well in school. I feel like I am becoming that "grumpy old man" - but alas, that is off topic.

I plan on supporting my daughter completely- but also need to make sure I instill the proper work ethic - always a tough balance.

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Re: where does kids college funds come into play in my plan?

Post by Grt2bOutdoors » Wed Aug 21, 2019 1:05 pm

dred pirate wrote:
Wed Aug 21, 2019 12:52 pm

I plan on supporting my daughter completely- but also need to make sure I instill the proper work ethic - always a tough balance.
Work ethic has nothing to do with money and all to do with the end result. Achieving a goal, completion of an objective, attaining progress. Instill those values and life satisfaction will come, hopefully with monetary rewards. Don’t tie money to values (debt or money for grades) it almost always ends up in a manner you don’t expect or anticipate.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

EnjoyIt
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Re: where does kids college funds come into play in my plan?

Post by EnjoyIt » Wed Aug 21, 2019 1:57 pm

dred pirate wrote:
Wed Aug 21, 2019 12:52 pm
thanks - I do some clinical teaching for two local university students (pharmacy) when they are on rotation- and also employ 5 interns. I worked 30 hours a week during school and 60 during breaks - and still was able to maintain excellent grades, so I guess I am a little disillusioned when I see students complain that they can't work 8 hours a week and still do well in school. I feel like I am becoming that "grumpy old man" - but alas, that is off topic.

I plan on supporting my daughter completely- but also need to make sure I instill the proper work ethic - always a tough balance.
Arrrh, you be doing right by your dourghterrr.

Ethics will be learned from you and not how much money you give to your daughter. Although giving too much support may decrease their work ethic or ability to achieve on their own. It is a fine balance.

As for your question, I understand wanting to get the school debt off your books though if I was to pay extra on anything it would be your 4.25% mortgage. The advise above to refinance should be taken seriously. You are young and working 60 hours a week is maybe doable for a few months a year today, but it is going to get old at some point. This will be even more so when your child arrives and will be off from school during that time themselves.

If I had to make a decision in your situation I would:
1) Refinance the house.
2) Keep funding all pretax accounts as you do.
3) If I had some extra cash available I would put $500/month in a 529
4) Save $500/month in a taxable account
5) Any extra cash left over I would keep putting into a taxable account and every so often drop a few hundred bucks into those school loans to make me feel better that they will go away sooner rather than later. Maybe make those payment $500/month instead of $422. I think until the loan is closer to $10k I would not be too aggressive at paying it off. At $500/month payments the school debt will be gone in less than 7 years which is not too far from now.

megabad
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Re: where does kids college funds come into play in my plan?

Post by megabad » Thu Aug 22, 2019 9:34 am

dred pirate wrote:
Tue Aug 20, 2019 6:02 pm
thanks all - another questions - is there any reason I should use North Carolina's 529 plan over another state's plans? If I was to move to any state, it likely would be Iowa (home state)
I see no reason for anyone to ever invest in NC 529. Why not just use a plan like Nevada's and get the same funds for half the expense?

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dred pirate
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Re: where does kids college funds come into play in my plan?

Post by dred pirate » Thu Aug 22, 2019 1:05 pm

megabad wrote:
Thu Aug 22, 2019 9:34 am
dred pirate wrote:
Tue Aug 20, 2019 6:02 pm
thanks all - another questions - is there any reason I should use North Carolina's 529 plan over another state's plans? If I was to move to any state, it likely would be Iowa (home state)
I see no reason for anyone to ever invest in NC 529. Why not just use a plan like Nevada's and get the same funds for half the expense?
that is what I was looking for - NC offers no tax benefit, so it is best to find the lowest cost, best fund, etc.

Broken Man 1999
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Re: where does kids college funds come into play in my plan?

Post by Broken Man 1999 » Thu Aug 22, 2019 5:22 pm

I use the Vanguard/Nevada plan for our four 529 plans for the grandchildren.

I like the fact that these plans can act like Target Retirement Funds in that they adjust the AA as the child gets older. I have all plans set for Vanguard Aggressive Age-Based Option. And, I have funds pulled from my credit union each month to add to the plans. My oldest grandchild (11) has an AA of 70% equity and 30% bond, my youngest grandchild (6) has an AA of 90% equity and 10% bond.

I like being able to see all my accounts, including the 529 plans, in my single login, and all part of our household statement.

The costs at Vanguard are less than I was paying at my state (Florida) sponsored plans.

Having all investments at Vanguard makes for easy management. The plans manage themselves, and the additional monthly funding is set to automatic.

For the 529 plans, I have added my daughters to the statements distribution for their children; their statements should act as an early warning system for Papa possibly having cognitive issues that might jeopardize the 529 plans administration. My instructions to daughters were for them to keep a sharp eye out for ANY and ALL changes. Any changes should cause them to challenge me immediately. If I make any change I will discuss it with them PRIOR to putting it in motion. Hopefully it will never be an issue, but I feel better with the two of them looking over my shoulder.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

Topic Author
dred pirate
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Re: where does kids college funds come into play in my plan?

Post by dred pirate » Thu Aug 22, 2019 5:44 pm

Broken Man 1999 wrote:
Thu Aug 22, 2019 5:22 pm
I use the Vanguard/Nevada plan for our four 529 plans for the grandchildren.

I like the fact that these plans can act like Target Retirement Funds in that they adjust the AA as the child gets older. I have all plans set for Vanguard Aggressive Age-Based Option. And, I have funds pulled from my credit union each month to add to the plans. My oldest grandchild (11) has an AA of 70% equity and 30% bond, my youngest grandchild (6) has an AA of 90% equity and 10% bond.

I like being able to see all my accounts, including the 529 plans, in my single login, and all part of our household statement.

The costs at Vanguard are less than I was paying at my state (Florida) sponsored plans.

Having all investments at Vanguard makes for easy management. The plans manage themselves, and the additional monthly funding is set to automatic.

For the 529 plans, I have added my daughters to the statements distribution for their children; their statements should act as an early warning system for Papa possibly having cognitive issues that might jeopardize the 529 plans administration. My instructions to daughters were for them to keep a sharp eye out for ANY and ALL changes. Any changes should cause them to challenge me immediately. If I make any change I will discuss it with them PRIOR to putting it in motion. Hopefully it will never be an issue, but I feel better with the two of them looking over my shoulder.

Broken Man 1999
thanks - will definitely look into it - didn't realize I could do it via my vanguard login

FireProof
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Re: where does kids college funds come into play in my plan?

Post by FireProof » Fri Aug 23, 2019 11:56 am

If anything, kids today (from upper-middle class families) have FAR TOO MUCH pressure, all without any skin in the game, whether it's self-imposed, peer pressure, or from parents. E.g. a recent study of a Silicon Valley high school found that 54 percent of students displayed moderate to severe symptoms of depression and 80 percent displayed moderate to severe symptoms of anxiety. Obviously getting into college is just the first hurdle in a Sisyphean race, and this mindset of joyless grinding continues long after, with a eternal fear of failure or falling behind motivating young adults to an unhealthy degree.

Long story short, their motivation is likely to be the least of their problems, and not having a massive debt hanging over their head will at the very least relieve stress, and may also give them a little more freedom and perspective, so they won't be forced into a job that endangers their long-term health and happiness, like working 80 hours per week as an investment banking analyst.

pinetree
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Re: where does kids college funds come into play in my plan?

Post by pinetree » Fri Aug 23, 2019 12:33 pm

Broken Man 1999 wrote:
Thu Aug 22, 2019 5:22 pm
I use the Vanguard/Nevada plan for our four 529 plans for the grandchildren.

I like the fact that these plans can act like Target Retirement Funds in that they adjust the AA as the child gets older.
+1

We are doing the same. We live in a state without the 529 tax deduction so I just picked the Vanguard/Nevada plan. I love the target date feature because I’m lazy when it comes to rebalancing but I want the allocation to get more conservative as we approach college.

We are earning two pensions and have a healthy retirement savings rate, so we are planning to fully fund in-state public university. We will consider funding private universities based on our financial picture as our kids get older and our kids’ needs and motivation level.

Re: having skin in the game - I don’t think there is a general rule here as kids are motivated by different things. You can observe your child’s disposition as she gets older and do your best to help her develop intrinsic motivation to work hard and enjoy herself along the way. My parents fully funded my private college and I was very motivated and graduated at the top of my class. I went on to graduate school and insisted on paying for it myself despite my parents’ offer to help. I’m deeply appreciative that I was able to graduate from college debt-free.

Ob81
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Re: where does kids college funds come into play in my plan?

Post by Ob81 » Fri Aug 23, 2019 1:47 pm

Op, you make over $200k a year. You are in the sweet spot for no aid/merit assistance offered, but high % loans offered in abundance. Most schools that will offer merit money to your child, will not be a public school or top tier private school.

A lot of people are suggesting that you tippy-toe around this student loan that you could literally pay off in less than 6 months with some soul searching. This would free up money that you could simply redirect to a 529. Simply put, in 6 months, no loans and money going to your child’s future college fund.

At your income, you have to go ahead and graduate from the %’s game, and start prioritizing what you want in life, because you have to pay for it. If you continue to struggle and play footsie with debt %’s, you can be like those parents in Illinois, and have your child declare as an independent, so that she can qualify for aid.

To be perfectly clear, you make enough to carry a mortgage on a $600,000 home, max 2 401ks, max 2 IRAs, and save $10000 a year for your child. You still have over $100,000 a year that you can use to play footsie with low interest loans, eat, and vacation with.

michoco911
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Re: where does kids college funds come into play in my plan?

Post by michoco911 » Sat Aug 24, 2019 1:23 am

6) As soon as kid is working, "Match their Wages into Roth IRA" Mine started at age 12 (Had $20+k by age 18), but age 8 would have been better.
Would be interested to know at what age did you teach you kid about saving and investing. Would like to do it early enough for my kids to be well prepared for the future with a solid financial background but not sure what timeframe is best.
30% VWRD 30% VUSD 40% AGGG until further notice

jmanter
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Re: where does kids college funds come into play in my plan?

Post by jmanter » Sat Aug 24, 2019 5:03 pm

Iowa's 529 is also quite good. Glide path options, Vanguard funds, and an overall ER of .20.

https://www.collegesavingsiowa.com

BernardShakey
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Re: where does kids college funds come into play in my plan?

Post by BernardShakey » Sat Aug 24, 2019 7:15 pm

OP - I would do a few things.
1) Look into refinancing the mortgage, With rates going a little lower, a low-cost re-fi might make sense if you are planning to stay put.
2) Aggressively pay down the student loan and just get rid of it. Gone forever. I know it's only 1.8% but with some focused attention you could get rid of it pretty quickly. At $1500 a month, done in 2 years.
3) Go ahead and open 529. Look at the low cost ones. I haven't looked in a while but I recall Ohio was pretty good. Until you pay off the student loan, just make very modest weekly/monthly automatic contributions. Then, ramp it up. With your income, you have time to wait and pay off your own college first!
4) Look at your credit cards, if you use one. Maybe you can get one that pays its reward right into the 529. I have had a 2% back card that puts the reward into my kid's 529 for probably 15 years. So, many of my bills are paid via the card and every month $75-100 gets automatically deposited to the 529.

Good luck! :)

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