Should We Ever Save for Children's College?

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griswoldfamilyxmas
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Should We Ever Save for Children's College?

Post by griswoldfamilyxmas »

My wife and I have two children, ages 4 and 1, with 529 plans for each. We currently contribute $285/month and $275/month, respectively. Both 529 plans are with Utah's my529 and are invested in the aggressive global age-based option. Our original plan was to pay for approximately 75% of the cost of attendance of two years at an in-state, public junior college and two years at an in-state, public university for each child, with each child to be responsible for the remaining 25%.

However, after reading several posts here, as well as this MMM post (https://forum.mrmoneymustache.com/inves ... msg1333153), I'm questioning if or when saving for our children's college is appropriate.

My wife and I are both state government employees with a gross HHI of $160,000.00. As state government employees, we are required to contribute 9% of our gross incomes ($14,400.00) to our state's pension system. Additionally, we each have the ability to contribute to a 457(b). Currently my wife is the only one contributing to her 457(b), contributing $4,500.00/year.

I currently have an HSA with Fidelity that I max out each year ($3,550.00); my wife's health insurance is not a HDHP. We also each have Roth IRAs with Vanguard that we max out each year.

Boglehead wisdom seems to suggest that we max out all of our tax-favored accounts before contributing any money to our 529 plans. Following that advice, we would need to invest approximately $69,000.00/year before saving any toward our children's college (We are currently two months away from paying off a high-interest debt; once that debt is paid, we plan to substantially increase our retirement savings from its current level). After taking into account taxes, insurances, necessary living expenses, and quality of life purchases, I don't know how feasible it would be to invest another $560/month into our 529 plans.

Should we simply forgo saving for college? Should we forgo some of our potential retirement savings? A combination of both? Thoughts? Criticisms? Thanks in advance.
Grt2bOutdoors
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Re: Should We Ever Save for Children's College?

Post by Grt2bOutdoors »

Who’s wisdom is that? With your incomes, your kids will have the choice of merit aid or loans. Most financial aid is loans. My advice to you is to fund retirement yes, but moderation in everything because your family comes first and Bogleheads and MMM last. You do not need to save 43 percent of gross to be able to retire. You will have an obscene amount of retirement funds and your kids will have loans - does that make sense? If you are saving 20-30 percent including your employer match then you are in good shape. Of course saving more is a “nice to have” but it all comes down to what you and your wife want. For me the choice is easy, I don’t want my kids to be overly burdened with debt when starting out in life if I have the ability to lessen the load.
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Normchad
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Re: Should We Ever Save for Children's College?

Post by Normchad »

I can’t think of anything more important than taking care of your children. Ensuring they have access to a quality education is part of that.

Yes, you should save for the education. Don’t count on anybody other help.....
runner3081
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Re: Should We Ever Save for Children's College?

Post by runner3081 »

Depends on what your goal is with their education.

We will pay for our daughter's tuition and book for 4-years, she is on the hook for room/board if she wants to go away, or can live at home for free.

That drives the amount we are saving (roughly $375 per months now).
NotWhoYouThink
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Re: Should We Ever Save for Children's College?

Post by NotWhoYouThink »

Boglehead wisdom seems to suggest that we max out all of our tax-favored accounts before contributing any money to our 529 plans.
I see that advice a lot, but it's not what we did and things worked out fine. You probably should be saving at least 20% of your gross income for retirement, college, and whatever other long term needs you have. And you should be managing your careers so that your income grows faster than inflation. As you earn more you can save a larger percentage and still improve your standard of living.

Utah has some great low cost universities according to some posters on this site. It's far enough away from me that I never looked into it. But you should expect that your kids won't get need-based aid, so either you provide a lot of help or expect them go to community college for a couple of years.
hbdad
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Re: Should We Ever Save for Children's College?

Post by hbdad »

I think it depends on what you expect your pension to be. If you expect it to be small, then you need to make up the difference by saving for retirement. If you expect your pension to cover most/all of your expenses then perhaps you can cut back a little on the 457 or Roth. I am a government employee as well and our HHI is 165 and pay almost twice as much as you into my pension. If I stay until I can retire, my pension will be about equal to what I am making at time of retirement. I do save for retirement, but my savings have been inconsistent over the years as I need money for other things and I do save in Utah's 529 as well. Almost the same exact as you ($300 per kid).
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Re: Should We Ever Save for Children's College?

Post by Spirit Rider »

griswoldfamilyxmas wrote: Mon Oct 05, 2020 5:40 pm Boglehead wisdom seems to suggest that we max out all of our tax-favored accounts before contributing any money to our 529 plans.
Don't confuse the mantras of the most vocal. They certainly do not constitute "Bogleheads" and the mindlessness of such mantras are anything but wisdom.

The basic "thou shalt maximize all tax-advantage accounts" is an example of typical mantra mindlessness. It does not take into account an individual's desired retirement savings rate and their income.

Just as you generally should make tax-advantaged contributions up to your desired retirement savings rate. You should do so up to your retirement savings rate to fund an entirely adequate retirement.

However, that does not mean you should necessarily forgo 529 contributions. What you should do is to figure out what pension income you will have, what Social Security (SS) if any (some teachers don't pay SS taxes) and what if any additional retirement account distributions you will need in retirement.

Then you can determine adequate 457b contributions and adequate 529 contributions. Personally, I consider you current plan reasonable. In fact, I would find other ways of increasing 457b contributions (a little belt tightening, using a significant portion of raises, etc...) before cutting 529 contributions.
Small Savanna
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Re: Should We Ever Save for Children's College?

Post by Small Savanna »

Retirement is an important financial goal. Providing for your kids' education is also an important financial goal. Strive to achieve balance in all things.
livesoft
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Re: Should We Ever Save for Children's College?

Post by livesoft »

Do you get a state income tax break by contributing to 529 plans?

Will you still be working when your children attend college or will you be retired?
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KlangFool
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Re: Should We Ever Save for Children's College?

Post by KlangFool »

OP,


A) Why do you need to save for your kids' college education? Your annual savings is big enough to pay for a college education.


B) Unless you enjoy paying taxes instead of spending your own money, why would you do after-tax contribution to the 529? You could contribute to 457 instead.


C) Even if you want to save for college education, why should you use the 529? You could contribute to the 457 and put the tax savings into the Roth IRAs.


D) Money is fungible. Contribute to the 457/Roth IRA now. When the kid goes to college, you could reduce your 457 and Roth IRA contributions and pay for the college.

E) If you like tax-free growth of your money, why would you limit your money to 10 to 20 years via the 529 when you can grow your money for 30 to 40 years via 457/Roth IRAs?


How does it make any sense for you to pay 20+% taxes and contribute to the 529?


KlangFool
delamer
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Re: Should We Ever Save for Children's College?

Post by delamer »

If the state pensions that you refer to are defined benefit and you also are contributing to Social Security (or the pension itself is very generous), then your need to save a lot in defined contribution plans is much less important than it is for most people on this forum.

My spouse and I never contributed more than 10% of gross to our 401(k)s because we both had pensions plus SS. Our retirement income is significantly higher than our expenses, without taking any withdrawals from savings.

We contributed to 529s for both kids and they graduated debt free.
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Brianmcg321
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Re: Should We Ever Save for Children's College?

Post by Brianmcg321 »

Your current plan is fine. Save 200-300 per kid. Invest the rest in your retirement accounts. No need to make it complicated.
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Re: Should We Ever Save for Children's College?

Post by bloom2708 »

We saved $100k per kid (3 kids). 50% 529, 50% taxable. We took advantage of a reasonable state tax deduction.

Mostly we used/are using the tax free growth for 18+ years for each kid.

One of your kids is 4, so only 14 years of tax free growth. Well, more as you don't spend it all in year 1.

I'd use the 529 and taxable. With the pensions you can both save for retirement and college.
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1789
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Re: Should We Ever Save for Children's College?

Post by 1789 »

Its a matter of discussion how to save/pay for college education. Obviously only you can decide how you want to this. I will share what we do.

1) Max all traditional 401k and Roth ira/Backdoor Roth Ira for two people
2) Max out family HSA
3) Question comes down to Megabackdoor/Taxable/529 for our case. I put like 20k this year for my Megabackdoor and around 5-6k total for 2 kids. At this point i could put all my money to Megabackdoor and not a penny to 529 but we decided to do some. Wife did not do megabackdoor as not much money left in her case.
4) Our plan is to fund 30k in 529 for our two kids and stop contributions. The rest will come from our salary if we work then or from taxable if we can afford to help more later.
5) One can choose not to put any money to a 529 acclunt and then stop retirement contributions/annual savings during the years kids go to college and pay from their paychecks to help their kids. This is also a good plan, imo.
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Topic Author
griswoldfamilyxmas
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Re: Should We Ever Save for Children's College?

Post by griswoldfamilyxmas »

hbdad wrote: Mon Oct 05, 2020 6:08 pm I think it depends on what you expect your pension to be. If you expect it to be small, then you need to make up the difference by saving for retirement. If you expect your pension to cover most/all of your expenses then perhaps you can cut back a little on the 457 or Roth.
We can collect our pensions after either (1) 30 years of service or (2) reaching 60 years of age. We both plan to put in 30 years, although I understand that could always change. My wife currently has 8 years of service; I have 2.

The pension amount is based on our years of service. For each service year, our pension will pay 2% of our highest salary (in reality, its an average of our highest four years). So, assuming 30 years of service, our pensions would pay 60% of our highest salary. Additionally, there is an annual COLA that would offset inflation.
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Re: Should We Ever Save for Children's College?

Post by Ron Ronnerson »

Your age might be a relevant factor too. Once you're over 59.5, you can access retirement accounts without penalty. I'm a teacher maxing out a 403b and 457b but put nothing in a 529. I plan to use retirement accounts to pay for my daughter's college. My pension should fully cover our retirement expenses and we will be 59 by the time our daughter starts college. Depending on your ages, retirement accounts might be an option. They provides tax benefits as well as increased flexibility since you can use the money for anything, including college for children.
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griswoldfamilyxmas
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Re: Should We Ever Save for Children's College?

Post by griswoldfamilyxmas »

livesoft wrote: Mon Oct 05, 2020 6:19 pm Do you get a state income tax break by contributing to 529 plans?
Our state offers a tax break by contributing to our state's 529 plan; however, its fees are so high that, even when factoring in the tax break, it was cheaper to use Utah's plan. There is a bill currently pending in our state legislature to allow a tax deduction for contributing to any state's 529 plan. Hopefully that passes.
livesoft wrote: Mon Oct 05, 2020 6:19 pm Will you still be working when your children attend college or will you be retired?
I think my wife would retire right after our one-year-old graduates college (21 or 22 years). I plan to work until I'm 60 (28 years).
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dogagility
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Re: Should We Ever Save for Children's College?

Post by dogagility »

To each their own. The best two financial goals we've reached is to save a sufficient amount for retirement and have our kids graduate college debt free.

It's also nice to have a sufficient amount of money saved/on hand so that the decision of which university to attend is not impacted by financial considerations.
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Buy_N_Hold
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Re: Should We Ever Save for Children's College?

Post by Buy_N_Hold »

It depends on your family dynamic. My wife and I were both able to get full rides, so we are just banking on that for our daughter. If you are flexible with the choice of school, there is lots of money out there to take advantage of!
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MarkBarb
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Re: Should We Ever Save for Children's College?

Post by MarkBarb »

Saving enough for retirement should be a higher priority than saving for your kid's education. They can borrow money for college but you can't borrow money for retirement. But "enough" is the key word here. As long as you are comfortable with your level of retirement savings, I don't see a problem with putting money into college savings. But as a child, I'd rather deal with student loans than having a parent that can't afford a basic retirement.

One thing that I don't see mentioned enough is that a 529 is a trade-off between tax benefits and spending restrictions. The first dollars you put into a 529 plan when your children are very young are going to get the biggest tax benefit (more time to grow) and the least restrictions (you'll almost certainly spend some dollars on eligible expenses). As your children get older and you have more money saved, the trade-off gets worse. We saved enough to cover about 60% of expected college costs in 529s by the time our children were roughly 11 years old. After that, we saved the remainder in a taxable account.
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Re: Should We Ever Save for Children's College?

Post by Trader Joe »

griswoldfamilyxmas wrote: Mon Oct 05, 2020 5:40 pm My wife and I have two children, ages 4 and 1, with 529 plans for each. We currently contribute $285/month and $275/month, respectively. Both 529 plans are with Utah's my529 and are invested in the aggressive global age-based option. Our original plan was to pay for approximately 75% of the cost of attendance of two years at an in-state, public junior college and two years at an in-state, public university for each child, with each child to be responsible for the remaining 25%.

However, after reading several posts here, as well as this MMM post (https://forum.mrmoneymustache.com/inves ... msg1333153), I'm questioning if or when saving for our children's college is appropriate.

My wife and I are both state government employees with a gross HHI of $160,000.00. As state government employees, we are required to contribute 9% of our gross incomes ($14,400.00) to our state's pension system. Additionally, we each have the ability to contribute to a 457(b). Currently my wife is the only one contributing to her 457(b), contributing $4,500.00/year.

I currently have an HSA with Fidelity that I max out each year ($3,550.00); my wife's health insurance is not a HDHP. We also each have Roth IRAs with Vanguard that we max out each year.

Boglehead wisdom seems to suggest that we max out all of our tax-favored accounts before contributing any money to our 529 plans. Following that advice, we would need to invest approximately $69,000.00/year before saving any toward our children's college (We are currently two months away from paying off a high-interest debt; once that debt is paid, we plan to substantially increase our retirement savings from its current level). After taking into account taxes, insurances, necessary living expenses, and quality of life purchases, I don't know how feasible it would be to invest another $560/month into our 529 plans.

Should we simply forgo saving for college? Should we forgo some of our potential retirement savings? A combination of both? Thoughts? Criticisms? Thanks in advance.
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Thrifty Femme
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Re: Should We Ever Save for Children's College?

Post by Thrifty Femme »

1789 wrote: Mon Oct 05, 2020 6:50 pm Its a matter of discussion how to save/pay for college education. Obviously only you can decide how you want to this. I will share what we do.

1) Max all traditional 401k and Roth ira/Backdoor Roth Ira for two people
2) Max out family HSA
3) Question comes down to Megabackdoor/Taxable/529 for our case. I put like 20k this year for my Megabackdoor and around 5-6k total for 2 kids. At this point i could put all my money to Megabackdoor and not a penny to 529 but we decided to do some. Wife did not do megabackdoor as not much money left in her case.
4) Our plan is to fund 30k in 529 for our two kids and stop contributions. The rest will come from our salary if we work then or from taxable if we can afford to help more later.
5) One can choose not to put any money to a 529 acclunt and then stop retirement contributions/annual savings during the years kids go to college and pay from their paychecks to help their kids. This is also a good plan, imo.
Why 30k?
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vineviz
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Re: Should We Ever Save for Children's College?

Post by vineviz »

Spirit Rider wrote: Mon Oct 05, 2020 6:09 pm
griswoldfamilyxmas wrote: Mon Oct 05, 2020 5:40 pm Boglehead wisdom seems to suggest that we max out all of our tax-favored accounts before contributing any money to our 529 plans.
Don't confuse the mantras of the most vocal. They certainly do not constitute "Bogleheads" and the mindlessness of such mantras are anything but wisdom.

The basic "thou shalt maximize all tax-advantage accounts" is an example of typical mantra mindlessness. It does not take into account an individual's desired retirement savings rate and their income.
+1

The loudness with which some people shout "don't save for college" has nothing to do with rationality or sound financial planning.
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vineviz
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Re: Should We Ever Save for Children's College?

Post by vineviz »

griswoldfamilyxmas wrote: Mon Oct 05, 2020 7:01 pm
livesoft wrote: Mon Oct 05, 2020 6:19 pm Do you get a state income tax break by contributing to 529 plans?
Our state offers a tax break by contributing to our state's 529 plan; however, its fees are so high that, even when factoring in the tax break, it was cheaper to use Utah's plan. There is a bill currently pending in our state legislature to allow a tax deduction for contributing to any state's 529 plan. Hopefully that passes.
Check on your state's ability to "claw back" the deduction: you may be able to contribute to your state's plan, take the deduction, and then rollover the money to the Utah plan.

Some states will unwind the deduction if you do this, but many do not.
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fishnhunt
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Re: Should We Ever Save for Children's College?

Post by fishnhunt »

Your kids can always borrow money for college if needed. You cannot borrow money for retirement. Invest enough for yourself first. Once that is covered invest in the 529's to cover their college. If there is still extra invest more for your retirement.
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Re: Should We Ever Save for Children's College?

Post by Watty »

griswoldfamilyxmas wrote: Mon Oct 05, 2020 5:40 pm Should we simply forgo saving for college? Should we forgo some of our potential retirement savings? A combination of both? Thoughts? Criticisms?
A few sort of random thoughts;

1) The choice is not just between retirement savings and college savings. Moderating your lifestyle is also an option. If you could get in a time machine and ask your 30 year old kids if they would rather have student loans or live a more modest lifestyle when they were kids I would bet that few adult kids would pick student loans.

2) Some people will post about how having a kid pay a lot of their college costs will build character or give them more "skin in the game". That may be true for some kids but finances is the leading reason that kids dropout of college.

I just looked and The University of Utah only has a graduation rate of about 62% which is not unusual for a state university.

https://www.google.com/search?rlz=1C2CH ... ent=psy-ab

You can research it but a lot of the kids that did not graduate likely dropped out at least in part because of financial issues.

My son was never a strong student and he really struggled with the advanced math classes that he needed to get his Computer Science degree. We were paying for his college but if he had more financial pressure I really think he would have given up. He did graduate and is doing great in his career now.

In the mythical town of Lake Woebegone all the kids are above average. In the real world there is a fifty fifty chance that your kid will be a below average college students who may need additional TLC and financial support to help them get through college.

3) Kids working during college can be counter productive. One of my son's roommates was working at a Taco Bell in college and he had to frequently work until 2:00AM even during finals week and that greatly impacted his grades. Since we were paying for his college we set the rule that my son could not work during the school year unless it was related to his major. By about his sophomore year he was able to find a part time job at the campus computer center which gave him some great experience for when he graduated and was looking for his first full time job.

4) In deciding how much to help out your kids with college one minimum to consider is how much your parents were able help out with your college costs and then at least try to at least match that(adjusted for inflation) if you are reasonably able to. We were able to pay the tuition and room and board for my son to go to a state university just like my parents had paid for me to go to a state university. My wife's parents were able to pay for very little of her college expenses. Us paying for his college expenses was always with the expectation that he would pay it forward and pay for his kids college as much as he is able to. A few years after he graduated we were talking about how so many of his friends have large student loans and that came up again and he thought that was a fair deal. (Our paying for his college was not unconditional.)
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Re: Should We Ever Save for Children's College?

Post by Grt2bOutdoors »

vineviz wrote: Mon Oct 05, 2020 7:33 pm
Spirit Rider wrote: Mon Oct 05, 2020 6:09 pm
griswoldfamilyxmas wrote: Mon Oct 05, 2020 5:40 pm Boglehead wisdom seems to suggest that we max out all of our tax-favored accounts before contributing any money to our 529 plans.
Don't confuse the mantras of the most vocal. They certainly do not constitute "Bogleheads" and the mindlessness of such mantras are anything but wisdom.

The basic "thou shalt maximize all tax-advantage accounts" is an example of typical mantra mindlessness. It does not take into account an individual's desired retirement savings rate and their income.
+1

The loudness with which some people shout "don't save for college" has nothing to do with rationality or sound financial planning.
+2.
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chw
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Re: Should We Ever Save for Children's College?

Post by chw »

I feel that you have an obligation to help educate your children to the extent you can after saving reasonable sums for an adequate retirement. Saving an education nest egg will give them options both in choosing an appropriate university, as well as career post graduation if they aren’t heavily burdened with loans (though some loans aren’t bad- just not a heavy load),

It seems that with your household income, some savings for college should be doable, and depending on your state, you may even receive tax credits to do so.
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1789
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Re: Should We Ever Save for Children's College?

Post by 1789 »

Thrifty Femme wrote: Mon Oct 05, 2020 7:22 pm
1789 wrote: Mon Oct 05, 2020 6:50 pm Its a matter of discussion how to save/pay for college education. Obviously only you can decide how you want to this. I will share what we do.

1) Max all traditional 401k and Roth ira/Backdoor Roth Ira for two people
2) Max out family HSA
3) Question comes down to Megabackdoor/Taxable/529 for our case. I put like 20k this year for my Megabackdoor and around 5-6k total for 2 kids. At this point i could put all my money to Megabackdoor and not a penny to 529 but we decided to do some. Wife did not do megabackdoor as not much money left in her case.
4) Our plan is to fund 30k in 529 for our two kids and stop contributions. The rest will come from our salary if we work then or from taxable if we can afford to help more later.
5) One can choose not to put any money to a 529 acclunt and then stop retirement contributions/annual savings during the years kids go to college and pay from their paychecks to help their kids. This is also a good plan, imo.
Why 30k?
Just needed a number that we think might be enough to cover the first 2 years of in state public university. We are assuming 30k (invested before kids become 3 years old) may grow to 80k or so. Obviously a lot of assumptions and unknowns.
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Re: Should We Ever Save for Children's College?

Post by Starfish »

I do not save money for college just because I cannot wrap my head about the idea of paying for education (although I already did it once). I don't know why people think is normal.
That being said we are also EU citizens, where quality education is free, or, in the worst case, not expensive.
To be more aligned with the topic, I also don't like at all 529. To many downsides and restrictions for too little upside.

PS: I also find funny how loans are called "financial help". Loans are not help, are the opposite of help.
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Re: Should We Ever Save for Children's College?

Post by jajlrajrf »

I have definitely noticed a very vocal "why save for college at all?" crowd among the Bogleheads. I think that opinion is terribly wrong (or at least, it is terribly wrong for me.)

I saved substantially for my kids education, using 529s. I sacrificed at the time in order to do it. As a result, they're going to be set to go to and graduate from college (I hope :D) without having to take on crushing debt. For me, this was an easy decision to make and I would do the exact same thing again. I took a little pain on the front end and in return I sleep well at night knowing that this is taken care of no matter what happens.

Did it involve tradeoffs? Sure. Every investing decision involves tradeoffs. Specifically, the 529 plan we went with turned out to have been invested more conservatively than I would have chosen if I was doing it "by hand." But on the other hand, that probably protected me from sequence-of-returns risk should my kids need the money during a market downturn.
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22twain
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Re: Should We Ever Save for Children's College?

Post by 22twain »

Starfish wrote: Mon Oct 05, 2020 9:49 pm I do not save money for college just because I cannot wrap my head about the idea of paying for education (although I already did it once). I don't know why people think is normal.
That being said we are also EU citizens, where quality education is free, or, in the worst case, not expensive.
Can you send your children to the EU for their college/university education, and are you and they agreeable with doing that?

My wife and I have friends and (somewhat distant) relatives in the EU, and she studied in an EU system as part of her Masters/Ph.D. So we're acquainted with the system(s) over there and and can appreciate your attitude. Nevertheless, if your children end up studying in the US, you have to take into account the US "system", such as it is, which of course varies from state to state. And this "system" puts students with no significant support from their parents, at a severe financial disadvantage.
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Re: Should We Ever Save for Children's College?

Post by Tribonian »

My oldest just started college and I’m really glad we funded 529s and Coverdell ESAs. We might have been richer if we’d put more into retirement instead, but I’m happy with the decision and would do it again.
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Re: Should We Ever Save for Children's College?

Post by Starfish »

22twain wrote: Mon Oct 05, 2020 10:59 pm
Starfish wrote: Mon Oct 05, 2020 9:49 pm I do not save money for college just because I cannot wrap my head about the idea of paying for education (although I already did it once). I don't know why people think is normal.
That being said we are also EU citizens, where quality education is free, or, in the worst case, not expensive.
Can you send your children to the EU for their college/university education, and are you and they agreeable with doing that?
This is a very good question.
I am very agreeable (not only the money but I think the experience is far superior). The kid is only 8 so I cannot say much about his opinion on the matter.
My wife and I have friends and (somewhat distant) relatives in the EU, and she studied in an EU system as part of her Masters/Ph.D. So we're acquainted with the system(s) over there and and can appreciate your attitude. Nevertheless, if your children end up studying in the US, you have to take into account the US "system", such as it is, which of course varies from state to state. And this "system" puts students with no significant support from their parents, at a severe financial disadvantage.
At worst we plan to help partially with the expense from taxable accounts. As I mentioned, I find the restrictions too strong and the advantages too small.
The optimal solution IMO would be the undergrad in EU and, if necessary, graduate studies in US.
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Re: Should We Ever Save for Children's College?

Post by GreendaleCC »

Starfish wrote: Mon Oct 05, 2020 9:49 pm I do not save money for college just because I cannot wrap my head about the idea of paying for education (although I already did it once). I don't know why people think is normal.
That being said we are also EU citizens, where quality education is free, or, in the worst case, not expensive.
To be more aligned with the topic, I also don't like at all 529. To many downsides and restrictions for too little upside.

PS: I also find funny how loans are called "financial help". Loans are not help, are the opposite of help.
Tell us more about how you see the restrictions outweighing the upside.
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Re: Should We Ever Save for Children's College?

Post by Starfish »

GreendaleCC wrote: Tue Oct 06, 2020 12:12 am
Starfish wrote: Mon Oct 05, 2020 9:49 pm I do not save money for college just because I cannot wrap my head about the idea of paying for education (although I already did it once). I don't know why people think is normal.
That being said we are also EU citizens, where quality education is free, or, in the worst case, not expensive.
To be more aligned with the topic, I also don't like at all 529. To many downsides and restrictions for too little upside.

PS: I also find funny how loans are called "financial help". Loans are not help, are the opposite of help.
Tell us more about how you see the restrictions outweighing the upside.
The restrictions are obvious, you can use the money only for education related expenses, but not in any institution you might want. That is a major one for me. If the education cost ends up to be "too cheap" you are stuck with either a penalty or the hope that the grandchildren will spend the money.
I live in CA and there is state tax on 529.
My time horizon is not very long, about 10-12 years. If one pays for private school it's even shorter. This means I cannot be very aggressive with the investments and returns (the portion exempt from taxes) will not be large.
I also plan to have low income at that point (probably early retirement). The LTCG rate is not large enough o justify the lack of flexibility in spending my money.

One can optimize 529 benefits by putting in more money early (so more time to grow, less risk) and not having enough to have any money left after college expenses.
So you have to maximize it when you are young parents and spend a lot of money on child care or have one income gone. It's not very realistic.
And you have to hope that college is expensive enough to wipe out the entire balance. That's the wrong reward for saving money.
Last edited by Starfish on Tue Oct 06, 2020 12:55 am, edited 2 times in total.
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Re: Should We Ever Save for Children's College?

Post by Valky77 »

I'm new to this forum but have a kid just starting college. I agree with those that are saying to focus on your retirement funds first and college savings second. It may not work for all but when she got in her teen years we tried to focus on her money management. Lord knows we made enough mistakes to teach what not to do. When she turned 15/16 she had to get a part time job, they are limited on how late they can work so we weren't too worried. She was awesome at savings, had 10k by graduation and also took advantage of opportunities at school that allowed her to graduate high school with an associates already. We are also in Utah so these are things your kids may be able to take advantage of. I didn't have my tuition paid for and had a boatload of loans, I don't regret them for a second. I saw kids that had their school paid for and didn't take it seriously because it wasn't their money they were wasting. Many of them were the ones dropping out. We offered to help pay for school for the first year or two and supplement if she really needed more, but the bulk was her responsibility. If you are able to save now, that will be a huge help. Even if you lowered it down to 100 a month each, and put the rest towards your retirement savings it would be a win win. It may be pricey to send them straight to the U or Y for 4-6 yrs but don't weed out WSU completely (alum and probably bias). It is cheaper and a much better environment for learning (I went to the U also).
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Re: Should We Ever Save for Children's College?

Post by ivgrivchuck »

22twain wrote: Mon Oct 05, 2020 10:59 pm Can you send your children to the EU for their college/university education, and are you and they agreeable with doing that?
That depends on the EU country. In some countries (like Germany) just having an EU-passport is enough for free/low-cost education. In other countries (like Ireland) you pay the full tuition unless you have resided in the EU for three consecutive years before starting your studies.
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Re: Should We Ever Save for Children's College?

Post by Starfish »

ivgrivchuck wrote: Tue Oct 06, 2020 12:49 am
22twain wrote: Mon Oct 05, 2020 10:59 pm Can you send your children to the EU for their college/university education, and are you and they agreeable with doing that?
That depends on the EU country. In some countries (like Germany) just having an EU-passport is enough for free/low-cost education. In other countries (like Ireland) you pay the full tuition unless you have resided in the EU for three consecutive years before starting your studies.
Interesting, I did not know that!
I took the question as being about the entrance requirements. I don't have an easy answer to that. It's hard to come from American education system and pass entrance exams or prerequisite requirements which very likely in many countries in Europe. The language is another problem.
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Re: Should We Ever Save for Children's College?

Post by ponyboy »

I take everything over at MMM with a grain of salt. The only reason the founder of that site retired early is because he created that site and is living off all the proceeds from it. He's a joke imo. He didnt have enough to retire early yet the site preaches to everyone to basically live like you're homeless, take care of yourself then retire and live off $50/week.
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Re: Should We Ever Save for Children's College?

Post by TomatoTomahto »

fishnhunt wrote: Mon Oct 05, 2020 8:05 pm Your kids can always borrow money for college if needed. You cannot borrow money for retirement. Invest enough for yourself first. Once that is covered invest in the 529's to cover their college. If there is still extra invest more for your retirement.
People say “your kids can always borrow money for college” all the time. They can’t. You would have to co-sign the loans, which means that, effectively, you borrowed the money.
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Re: Should We Ever Save for Children's College?

Post by chipperd »

OP: Two questions, one of which was already asked by Livesoft and are crucial to answering your question.
1) Will you, or your wife, be working or generating an income, when one or more of your children are in college?
2) To figure out question #1, you will need to know how much you need, and when you wish, to retire/stop producing an income/reduce your income to part time.
Work backwards by figuring out your retirement/financial independence plan first (including pensions/social security) then decide if one or more of you will be working when kids are in college. Feel free to post a separate, retirement type question and I'm sure many Bogleheads will be happy to help you figure out how to reach your goal.
Personally, we drastically had our income reduced when our first of three went in to college and it had a dramatic effect on how much grant money they received to attend their respective schools. I was hammered here for this happening and not going back to work full time, but it was at the point where it only paid to work very part time, and it's been great.
Therefore, based on my sample size of 1 case, I would suggest you consider looking at timing your work/income reduction with roughly (2 years prior) to your first entering college. (assuming the post high school education rules of the game remain the same). Given your income and savings levels, it looks like you might be able to, intentionally, so the same, and enjoy the time with your family and your own pursuits, if you wish. YMMV.
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Re: Should We Ever Save for Children's College?

Post by JoeRetire »

griswoldfamilyxmas wrote: Mon Oct 05, 2020 5:40 pm My wife and I have two children, ages 4 and 1, with 529 plans for each. We currently contribute $285/month and $275/month, respectively. Both 529 plans are with Utah's my529 and are invested in the aggressive global age-based option. Our original plan was to pay for approximately 75% of the cost of attendance of two years at an in-state, public junior college and two years at an in-state, public university for each child, with each child to be responsible for the remaining 25%.

However, after reading several posts here, as well as this MMM post (https://forum.mrmoneymustache.com/inves ... msg1333153), I'm questioning if or when saving for our children's college is appropriate.
Try not to be swayed by the latest thing you read. That path just leads to confusion, endless churning, and waste.
Should we simply forgo saving for college? Should we forgo some of our potential retirement savings? A combination of both? Thoughts? Criticisms? Thanks in advance.
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Re: Should We Ever Save for Children's College?

Post by nisiprius »

Use common sense. Don't get all clever-clever about optimizing tax considerations or "hiding your house" to beat the FAFSA or anything like that. Your money is important, but your money is not as important as your kids' lives.

Student debt is not good for young people. "Working your way through college" is not good for young people. It's survivable, of course, and it's not all bad, of course, but mostly it's not good. I think parents should pay for their kids' college if they can. How people manage that varies. I have to think earmarked savings will usually be part of a prudent plan.

I don't think "tra-la-la, I won't worry about it, they can always get a loan" is a prudent plan.

Don't do something that feels wrong or violates your common sense because someone on the web said it was smart.

We were able to pay for our kids' college. The same thing happened with each of our two kids: a couple of years after college, they said "You know, we were talking to our friends who are paying their student loans, and I guess I didn't realize what a great thing you did for us, getting us through college debt-free, thanks Dad, thanks Mom."

Again, this will vary, but try to think of it from your kids' view--from your own point of view when you were in the same situation and from your kids' view now to whatever extent they have views. You are trying to juggle four priorities on the kids' behalves:

1) A suitable education that will leave life opportunities open for them
2) Not being saddled with debt on top of disorientation, early-career tensions, and possibly family-and-kids of their own
3) Not be saddled supporting you in your old age
4) Inheriting a big chunk of change
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Re: Should We Ever Save for Children's College?

Post by TomatoTomahto »

nisiprius wrote: Tue Oct 06, 2020 6:10 am Again, this will vary, but try to think of it from your kids' view--from your own point of view when you were in the same situation and from your kids' view now to whatever extent they have views. You are trying to juggle four priorities on the kids' behalves:

1) A suitable education that will leave life opportunities open for them
2) Not being saddled with debt on top of disorientation, early-career tensions, and possibly family-and-kids of their own
3) Not be saddled supporting you in your old age
4) Inheriting a big chunk of change
Other than exchanging #3 for #2, I think that’s how I’d order them in terms of importance.

I tell my kids that I’ve given them 2 big gifts: a debt free Bachelors Degree (and beyond) and the security of knowing that we would not be knocking on their doors asking for financial support.
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Re: Should We Ever Save for Children's College?

Post by Slacker »

ponyboy wrote: Tue Oct 06, 2020 5:20 am I take everything over at MMM with a grain of salt. The only reason the founder of that site retired early is because he created that site and is living off all the proceeds from it. He's a joke imo. He didnt have enough to retire early yet the site preaches to everyone to basically live like you're homeless, take care of yourself then retire and live off $50/week.
He stopped working in 2005 and started his blog in 2011. Probably didn't make significant income from the blog for the first few years.

Clearly, you thrive on mischaracterizations and character assassination using hyperbole and falsehoods. Why do you have such an axe to grind with the guy?
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Re: Should We Ever Save for Children's College?

Post by shorty313 »

We fund both goals. At first we were funding retirement to a level that we would retire comfortably at 65 and started funding a 529 for each child when they were born. This was before I discovered the world of early retirement planning. We also added a bit to each mortgage payment to align our last payment to when the oldest went off to college. After that point we started directing salary increases at retirement to move our date earlier when I discovered this site and other FIRE sites. My calculations tell me we should be able to cover college just fine and retire 10 years earlier than originally planned, at 55.

There is no 529 state tax deduction where I live, but for us a dedicated account was important to earmark the money and not use for other things. We both had our college paid for by parents and feel it is an important gift to pay forward.
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Re: Should We Ever Save for Children's College?

Post by teen persuasion »

chipperd wrote: Tue Oct 06, 2020 5:40 am OP: Two questions, one of which was already asked by Livesoft and are crucial to answering your question.
1) Will you, or your wife, be working or generating an income, when one or more of your children are in college?
2) To figure out question #1, you will need to know how much you need, and when you wish, to retire/stop producing an income/reduce your income to part time.
Work backwards by figuring out your retirement/financial independence plan first (including pensions/social security) then decide if one or more of you will be working when kids are in college. Feel free to post a separate, retirement type question and I'm sure many Bogleheads will be happy to help you figure out how to reach your goal.
Personally, we drastically had our income reduced when our first of three went in to college and it had a dramatic effect on how much grant money they received to attend their respective schools. I was hammered here for this happening and not going back to work full time, but it was at the point where it only paid to work very part time, and it's been great.
Therefore, based on my sample size of 1 case, I would suggest you consider looking at timing your work/income reduction with roughly (2 years prior) to your first entering college. (assuming the post high school education rules of the game remain the same). Given your income and savings levels, it looks like you might be able to, intentionally, so the same, and enjoy the time with your family and your own pursuits, if you wish. YMMV.
You must have missed the response to livesoft's question:
I think my wife would retire right after our one-year-old graduates college (21 or 22 years). I plan to work until I'm 60 (28 years).
The 30 years required for the pension makes it hard to enact your plan, one we are trying to reach for, too.

OP, maxing your retirement accounts means different things to different people. Some have fewer accounts (some only one option, IRA, because employer offers nothing), some multiple high limit options. Reaching the possible max contribution also means different things depending on total income (higher income makes it more likely you can contribute to the max, and still have more to save). So the best way to interpret "max" is "save to your desired level in a tax advantaged space".

The first thing you need to determine is how much you need to save for retirement. Then determine how much you'd like to save for college. Save for retirement first. If you have income leftover to save for college, then do so in the best manner available. That may or may not be in a 529.

For us, a 529 would be a bad choice: large family, low income, relatively high retirement savings rate reduces AGI to a level where we are eligible for significant aid (including merit scholarships). Having 529 balances are counterproductive for us, and penalized on the FAFSA (vs retirement balances). We have no pension, so we need to do all our own saving for retirement, and lower income (especially when the kids were younger) means we are playing catchup in retirement savings - there's no leftover for college savings.

Your situation is different: higher income, pensions, smaller family, dual income early. Under current FAFSA calculations (they change) you'd receive little grant aid due to income alone, so you will likely be expected to contribute to college expenses heavily. Saving for college is appropriate, but how much, and where best?

Some plan to defer to retirement heavily early, and then cut back during college years to pay college expenses OOP. Required pension contributions makes this harder for you.

Savings options include 529, taxable, and possibly "retirement" accounts like Roth IRAs, or a combo. You could save more to your 457 (and net more tax deferral) and plan to earmark your roth IRAs partially for college expenses (can withdraw contributions anytime) - advantage is Roth is more flexible than 529. Taxable is also more flexible than 529, but at your income level has less tax advantage than 529 or Roth IRAs (which you are already doing).

The question I have is: are you saving enough for retirement? If you are at all not sure, lean toward saving more to retirement instead of a specialized college-only account, since the retirement accounts can be used for other purposes, too.
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Re: Should We Ever Save for Children's College?

Post by Grt2bOutdoors »

Slacker wrote: Tue Oct 06, 2020 6:22 am
ponyboy wrote: Tue Oct 06, 2020 5:20 am I take everything over at MMM with a grain of salt. The only reason the founder of that site retired early is because he created that site and is living off all the proceeds from it. He's a joke imo. He didnt have enough to retire early yet the site preaches to everyone to basically live like you're homeless, take care of yourself then retire and live off $50/week.
He stopped working in 2005 and started his blog in 2011. Probably didn't make significant income from the blog for the first few years.

Clearly, you thrive on mischaracterizations and character assassination using hyperbole and falsehoods. Why do you have such an axe to grind with the guy?
If the guy had $500k and was spending $75k in the area he lives in, he wasn’t exactly slumming it either before starting his blog? Did he retire a millionaire before 2005 or after he started his blog? I perused his blog once, I don’t recall if he laid out his personal financial statement on it.
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Re: Should We Ever Save for Children's College?

Post by mrmass »

griswoldfamilyxmas wrote: Mon Oct 05, 2020 6:55 pm
hbdad wrote: Mon Oct 05, 2020 6:08 pm I think it depends on what you expect your pension to be. If you expect it to be small, then you need to make up the difference by saving for retirement. If you expect your pension to cover most/all of your expenses then perhaps you can cut back a little on the 457 or Roth.
We can collect our pensions after either (1) 30 years of service or (2) reaching 60 years of age. We both plan to put in 30 years, although I understand that could always change. My wife currently has 8 years of service; I have 2.

The pension amount is based on our years of service. For each service year, our pension will pay 2% of our highest salary (in reality, its an average of our highest four years). So, assuming 30 years of service, our pensions would pay 60% of our highest salary. Additionally, there is an annual COLA that would offset inflation.
All I can see is that you have 2 yrs and wife has 8 yr of service. Planning to work at the same place for 22 and 28 yrs would be brutal for me to think about. Good luck I hope it works out.
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