College Savings or “Other” Strategy

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blrsmhr
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Joined: Fri Apr 10, 2020 4:00 pm

College Savings or “Other” Strategy

Post by blrsmhr »

Hello - I have read dozens of posts on both 529s and College savings but thought I would gather some direct input for some short term decisions for us. The forum was massively helpful on my previous post and continues to give me great insights.

Have daughters 6 and 3.

Age 38/39
Max 401K-HSA- BD Roth
6 Month Emergency in “High Yield” Savings
529 Contributions = State Deduction Limit $3340 per kid annually in WI
Mortgage @ 3.30% -$430K balance on $740K market value
No other debt
35% tax bracket
Have est 900K in 401K and $500K in taxable/employee stock $6K in IRA


We used COVID to streamline things so we will have a few thousand+ left over each month. Would love the groups thoughts on 1)getting way more aggressive with our taxable strategy 2) Ramping up 529 to pre-pay both college and private middle/high school? 3) Mortgage Payoff 4) Something else ??

Many thanks in advance!!
Grt2bOutdoors
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Re: College Savings or “Other” Strategy

Post by Grt2bOutdoors »

Save for college.
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Rudedog
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Re: College Savings or “Other” Strategy

Post by Rudedog »

You only have twelve years before college for 6 year-old. Recommend you ramp up 529 contributions. My objective would be to have at least $ 100K put away for each when they start college. Good luck.
Jack FFR1846
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Re: College Savings or “Other” Strategy

Post by Jack FFR1846 »

US Savings Bonds in your name. Can be cashed and used for education, so no tax on the interest.
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Grt2bOutdoors
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Re: College Savings or “Other” Strategy

Post by Grt2bOutdoors »

Jack FFR1846 wrote: Fri Sep 18, 2020 9:43 am US Savings Bonds in your name. Can be cashed and used for education, so no tax on the interest.
In the 35 percent tax bracket?
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mak1277
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Re: College Savings or “Other” Strategy

Post by mak1277 »

My personal preference is that I would never put a cent into a 529 beyond the state deduction limit. You can still save in taxable and use that money for education, but there's no restriction on it. I realize that others do it much differently but that's my tolerance level. A 529 is a tax strategy, not a strategy to save for college. You can do the latter anywhere.
livesoft
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Re: College Savings or “Other” Strategy

Post by livesoft »

Since you are in the 35% marginal income tax bracket and have huge assets, your children will not be getting any financial aid. 529 plans are designed exactly for wealthy people with your situation. Start using 529 plans for each of your children now. If your income stays high, then you will not be able to use the American Opportunity Tax Credit, nor the Lifetime Learning Credit, nor savings bonds, nor any other education assistance made for people with none of your income and none of your wealth. Once again, 529 plans are made for you.
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goodenyou
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Re: College Savings or “Other” Strategy

Post by goodenyou »

I saved tens of thousands of dollars in taxes by saving in a 529 plan for 3 kids. Paid full freight for three plus graduate school. I would have been hammered in taxes in a taxable account.
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Jack FFR1846
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Re: College Savings or “Other” Strategy

Post by Jack FFR1846 »

Grt2bOutdoors wrote: Fri Sep 18, 2020 9:43 am
Jack FFR1846 wrote: Fri Sep 18, 2020 9:43 am US Savings Bonds in your name. Can be cashed and used for education, so no tax on the interest.
In the 35 percent tax bracket?
I didn't notice that.

In that bracket, save some money and pay for college.
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KlangFool
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Re: College Savings or “Other” Strategy

Post by KlangFool »

OP,

At 35% tax bracket, 529 is the right answer for you.


KlangFool
BernardShakey
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Re: College Savings or “Other” Strategy

Post by BernardShakey »

529s all the way....especially at your income level. Save early and often. Good luck!
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Topic Author
blrsmhr
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Re: College Savings or “Other” Strategy

Post by blrsmhr »

Incredible and timely feedback. Thanks!

Final follow up question. Anyone have a rule of thump where they stopped contributing to the 529K and prioritized the next goal?

One poster had $100K =4 years -@50K/year, which seems like a solid amount but who knows what the trajectory of education will be. Could continue, could plateau, could go down. Impossible to predict anything anymore.
KlangFool
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Re: College Savings or “Other” Strategy

Post by KlangFool »

blrsmhr wrote: Sat Sep 19, 2020 7:15 am Incredible and timely feedback. Thanks!

Final follow up question. Anyone have a rule of thump where they stopped contributing to the 529K and prioritized the next goal?

One poster had $100K =4 years -@50K/year, which seems like a solid amount but who knows what the trajectory of education will be. Could continue, could plateau, could go down. Impossible to predict anything anymore.

At your income level, you could continue contributing and use the 529 to fund your grandchildren/nephews/nieces college education.


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CyclingDuo
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Re: College Savings or “Other” Strategy

Post by CyclingDuo »

blrsmhr wrote: Sat Sep 19, 2020 7:15 am Incredible and timely feedback. Thanks!

Final follow up question. Anyone have a rule of thumb where they stopped contributing to the 529K and prioritized the next goal?

One poster had $100K =4 years -@50K/year, which seems like a solid amount but who knows what the trajectory of education will be. Could continue, could plateau, could go down. Impossible to predict anything anymore.
If we go with trends in education (costs usually rise 3% above inflation, sometimes more), expect college costs to double by the time your children enroll. :beer

The demographics of the current freshmen in high school class and below will be the largest - population wise - to hit the college campuses in history. I don't see how that type of supply/demand scenario is going to suddenly have colleges lowering costs. :D

It depends on your goals. Are you planning on paying 100%, 70%, 50%, or 30% of their college costs? Will you cash flow some of the costs from your salaries at the time? We went with the option of paying 100% for our children's college. If we define that 100%, it included what we had saved in their college education funds, they worked in high school and college to chip in what they could on expenses, and there were paid internships as well as some talent based scholarships involved. However, the goal was to have them graduate debt free from both undergraduate and graduate school which we accomplished with the combined effort. The remains of what we had saved for each of them was turned over to them to begin their investing and working careers after they graduated.

You already have no other debt, have an emergency fund, are funding your retirement plans & your taxable account, and you are funding the college education accounts. Looks like the next priority after fully funding college education plans would be to start paying more on the principal of your mortgage. Whether you do that alone, or also include getting more aggressive with additional saving in taxable - it's all good. In Ramsey speak, that would put you in Baby Steps 5, 6, and 7 all at the same time which is a nice spot to be in, for sure - especially at your young ages. Kudos! :beer

CyclingDuo
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Grt2bOutdoors
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Re: College Savings or “Other” Strategy

Post by Grt2bOutdoors »

blrsmhr wrote: Sat Sep 19, 2020 7:15 am Incredible and timely feedback. Thanks!

Final follow up question. Anyone have a rule of thump where they stopped contributing to the 529K and prioritized the next goal?

One poster had $100K =4 years -@50K/year, which seems like a solid amount but who knows what the trajectory of education will be. Could continue, could plateau, could go down. Impossible to predict anything anymore.
You could have $125-$150k in each 529 plan and shouldn’t be too concerned about overfunding. Outside of attending an instate commuter school, you can anticipate spending $100+k for each and there is nothing to say they won’t be attending graduate school down the road or a private undergrad that costs $50k+ a year.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
BernardShakey
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Re: College Savings or “Other” Strategy

Post by BernardShakey »

blrsmhr wrote: Sat Sep 19, 2020 7:15 am Incredible and timely feedback. Thanks!

Final follow up question. Anyone have a rule of thump where they stopped contributing to the 529K and prioritized the next goal?

One poster had $100K =4 years -@50K/year, which seems like a solid amount but who knows what the trajectory of education will be. Could continue, could plateau, could go down. Impossible to predict anything anymore.
My advice...settle on what you are going to be willing to pay for and save aggressively for that. For me it was deciding whether to target 4 years of in-state/live away or 4 years of private university/live away. The latter seemed a bridge too far. Also, don't completely rule out graduate and professional school. I know a lot of us draw the line at 4 years of undergrad but when the time comes and your kids have opportunities, and have done the work to get there, it's nice to have a little more in the coffers. Save aggressively in the 529s and you can roll it to grandchildren if there is surplus. Good luck!
An important key to investing is having a well-calibrated sense of your future regret.
HopeToGolf
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Re: College Savings or “Other” Strategy

Post by HopeToGolf »

livesoft wrote: Fri Sep 18, 2020 9:59 am Since you are in the 35% marginal income tax bracket and have huge assets, your children will not be getting any financial aid. 529 plans are designed exactly for wealthy people with your situation. Start using 529 plans for each of your children now. If your income stays high, then you will not be able to use the American Opportunity Tax Credit, nor the Lifetime Learning Credit, nor savings bonds, nor any other education assistance made for people with none of your income and none of your wealth. Once again, 529 plans are made for you.
Blrsmhr-

The quoted post is for you.

For one child we started saving about 2x your state deduction limit around the time of your eldest. Based on our projections (tuition and returns) we thought we could end up with a balance that would cover 4 years of state college and 2 years of an expensive private college. With 3 years to go, we are generally on track (we might have a little more).

The 529 is not for everyone but for our family I am expecting it to work. With your numbers it should work for you. One thing to determine is how much of your children’s education do you want to pay for. We plan to pay for 4 years of undergrad but did not plan to fully fund it using the 529 unless the offspring go to public school. To fund 4 years of private, our estimates projected we would need to save something like $10K-$15K per year per child starting at approx. age 5...we were not ready for that.

All that said, compared to the amount of money we are talking about, the tax savings vs. putting the money in taxable, is appreciated but will not move the needle. Income, savings, expenses, etc. are all far more important.
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