Am I hurting myself by saving too much? (re: college funding)

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betterfinances
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Am I hurting myself by saving too much? (re: college funding)

Post by betterfinances » Fri Jan 22, 2016 9:05 pm

I'm a saver by nature. Rather than going to Disneyland, taking exotic trips to faraway lands, or driving new cars, we put away money into savings and for the future. By now, we have a tidy sum in retirement, 529s, and taxable accounts.

I'm now becoming concerned that perhaps we're screwing ourselves with regards to college because we have saved. When it comes to need based aid, we will not qualify because we have a sky high EFC. The EFC is based on assets (5% of assets are expected to be spent on college expenses) and income (not sure what the formula is for income), so since we have a significant amount set aside in assets, we have zero chance of qualifying for need based aid.

That burns* me to no end. If we stop saving today and start spending, we have a good chance at qualifying for need based aid and can have a lot of great experiences that would be fun for us and our kids. And we might or probably would get a discount on college costs.

The issue is not so much the cost of college at the state flagship college. We have that money set aside. It is the fact that some of the students that do not come from strong financial backgrounds will be able to get into Caltech or MIT at very little cost because of their income / asset level, while I'm not willing to spend $60k a year on the most prestigious colleges because I refuse to pay for a "name brand" college.

So, my questions are:

1) What should I do now so I can make college the most affordable possible for my family, considering that we will not qualify for need based financial aid?

2) For those who are closer to the college years than I am, am I incorrect in believing that need based aid is a good thing (i.e., in reality is it mostly loans which do not lower the cost of college, just spread it out over more years)

3) Any other thoughts about paying for college that can help justify continuing to save even though we won't receive need based discounts from the college sticker price?

livesoft
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Re: Am I hurting myself by saving too much? (re: college funding)

Post by livesoft » Fri Jan 22, 2016 9:19 pm

We paid full sticker price for one of the most expensive private elite universities in the USA. There was no financial aid. Basically, if you have any money anywhere, the college assumes it belongs to them. But we could afford it because the stock market went up almost every year and our portfolio went up by many times the annual cost of college.

So, I don't think money is your problem, but your sense of entitlement might be. You are not going to get financial aid and your family will have to pay full sticker price for any colleges they attend. So what? College is inexpensive anyways. Don't fall for the media hype that college is not affordable for upper middle class wealthy families like yours.
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Re: Am I hurting myself by saving too much? (re: college funding)

Post by stoptothink » Fri Jan 22, 2016 9:21 pm

betterfinances wrote: 2) For those who are closer to the college years than I am, am I incorrect in believing that need based aid is a good thing (i.e., in reality is it mostly loans which do not lower the cost of college, just spread it out over more years)


Well, I just completed my education 3yrs ago and I have two younger siblings in college right now; you are stressing about nothing, currently need based aid is nothing but loans unless you are truly low income and I highly doubt that is changing anytime in the near future. Yes, a few private universities have a huge endowment and provide actual financial aid to students from not wealthy families (ie. Harvard and Stanford), but they are few and far between. By saving now and setting yourself for financial independence, you are far more likely to be able to cashflow their education and IMO that is by far the best scenario. Trying to play FAFSA tricks or spending now to try to get future aid will almost assuredly result in worse results.

...and I kind of agree with Livesoft, money isn't an issue but your sense of entitlement might be. Even if it was possible to game the system and procure financial aid for your children, these programs were intended to assist families with actual financial need.
Last edited by stoptothink on Fri Jan 22, 2016 9:24 pm, edited 1 time in total.

Jack FFR1846
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Re: Am I hurting myself by saving too much? (re: college funding)

Post by Jack FFR1846 » Fri Jan 22, 2016 9:21 pm

Some things I remember from the multiple college finance planning seminars that I started attending when my oldest son was about 8.....

Public colleges are the easiest to qualify for need based aid.
But public colleges have the least to offer for aid.

There are places to "hide" assets for FAFSA-only colleges. Your house. Retirement accounts. Grandparent owned 529 (but then you can't use it till the last income year has gone by.

Income has more effect on expected family contribution than assets. So if you make good money....you're going to pay. Oh, and I assume you already know that student assets are worse and student income is worst of all when it comes to need.

On to your "What is aid" question. This depends on the college, so if your kids are headed to Harvard, they could get actual grants. Of course, throw all that FAFSA based stuff above out the window. Private colleges often use CSS, iDOT or their own forms for financial aid and they ask cool stuff like "has anyone besides parents paid anything towards the student's education?". "Does a grandparent or other person name the student as the benificiary?". And of course, they DO count your retirement accounts and primary house as an asset.

But in general, aid means loans. Everyone gets Stafford loans for $5500 a year at reasonable (relatively) interest and this is in the student's name. My son has these so he's got skin in the game. There are then college loans and private loans that can be student and/or parent based. Then there's work-study. Lastly, there are need based grants. I remember clearly where income starts counting. It's AT the poverty level. For every dollar you make over the poverty level, it's a dollar counted as income available for paying for college.

Save your money and just feel good that you can pay for college for your kids.

I'm paying full price for a top regional STEM college. We have the stafford. That's it.
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Re: Am I hurting myself by saving too much? (re: college funding)

Post by Gill » Fri Jan 22, 2016 9:27 pm

I have trouble agreeing with Livesoft's on this one. I spent seven years getting two degrees, also at two of the most elite universities. At today's costs, this would run over half a million dollars. It cost my father about $35,000 many years ago. Do you really feel this is affordable by anyone but the wealthy high income families?
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Re: Am I hurting myself by saving too much? (re: college funding)

Post by livesoft » Fri Jan 22, 2016 9:31 pm

If my family with taxable income of less than $100,000 a year can afford it, then I think anyone can afford it.

My son attends a well-regarded state university. The cost is about $20K a year including room & board & books & travel. He can earn $6,000 of that easily in 12 months and the AOTC will pay $2,500 of it.

As for more expensive universities, the OP has saved quite a lot of money already as noted in other posts. Their portfolio could be gaining $300,000 a year by the time their kids start attending college. In any event, the 401(k) contributions of a two-earner family could be $36,000 to $48,000 a year. That seems about the annual cost of college, doesn't it?
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stoptothink
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Re: Am I hurting myself by saving too much? (re: college funding)

Post by stoptothink » Fri Jan 22, 2016 9:34 pm

Gill wrote:I have trouble agreeing with Livesoft's on this one. I spent seven years getting two degrees, also at two of the most elite universities. At today's costs, this would run over half a million dollars. It cost my father about $35,000 many years ago. Do you really feel this is affordable by anyone but the wealthy high income families?
Gill


Costs matter, and they can vary dramatically between schools and even then there are ways to make it more cost-effective. I paid for all of it on my own, without any financial help from my parents, as did three of my siblings, and the two who are currently in school. Decide for yourself and for each child how much that name brand school is worth and if that situation is even best for that child. It's possible, I did it recently and I also put my (ex) wife through dental school, and nobody would possibly mistake me for being wealthy.


DonDraper
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Re: Am I hurting myself by saving too much? (re: college funding)

Post by DonDraper » Fri Jan 22, 2016 9:46 pm

Great thread. I had some of the same thoughts regarding whether I'm going to be penalized for being a saver.

I have a coworker whose son is attending the Rutgers Camden campus for next to nothing.(couple thousand a semester). I'm not sure why they were able to secure such a deal. The family is middle class with about an $85-90k family income. The student had excellent grades and they are Filipino. My guess is they have little or no savings.

Do colleges still give major tuition reductions for academic reasons? Does being a minority improve your chances for aid?

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by Vilgan » Fri Jan 22, 2016 9:49 pm

Just encourage them to get married or join the military or some other qualifier that lets them register as independent :)

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by Gill » Fri Jan 22, 2016 9:58 pm

livesoft wrote:If my family with taxable income of less than $100,000 a year can afford it, then I think anyone can afford it.

My son attends a well-regarded state university. The cost is about $20K a year including room & board & books & travel. He can earn $6,000 of that easily in 12 months and the AOTC will pay $2,500 of it.

As for more expensive universities, the OP has saved quite a lot of money already as noted in other posts. Their portfolio could be gaining $300,000 a year by the time their kids start attending college. In any event, the 401(k) contributions of a two-earner family could be $36,000 to $48,000 a year. That seems about the annual cost of college, doesn't it?

Please don't try to dazzle us with your footwork by talking of your "taxable income". You are the guy that brags he pays very little tax on a large income. You know as well as anyone that taxable income is irrelevant.
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DonDraper
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Re: Am I hurting myself by saving too much? (re: college funding)

Post by DonDraper » Fri Jan 22, 2016 10:00 pm

Colleges are starting to offer options to lower the overall cost of tuition.

Rowan University in NJ just unveiled a program where you can attend the local community college for 3 years and in the fourth year attend Rowan for a total cost of only $25k.

University of Maine is offering out of state students a tuition price equal to the student's home state tuition.

My child is only 9 so I'm hoping this is just the start of huge trend.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by Quotia » Fri Jan 22, 2016 10:01 pm

DonDraper wrote:Great thread. I had some of the same thoughts regarding whether I'm going to be penalized for being a saver.

I have a coworker whose son is attending the Rutgers Camden campus for next to nothing.(couple thousand a semester). I'm not sure why they were able to secure such a deal. The family is middle class with about an $85-90k family income. The student had excellent grades and they are Filipino. My guess is they have little or no savings.

Do colleges still give major tuition reductions for academic reasons? Does being a minority improve your chances for aid?


Depends on the school, but yes, many do still give significant merit scholarships. My daughter was offered a scholarship from an out-of-state flagship that would have brought the cost below our state university.

In our experience (daughter is mixed race), scholarships for minority students tend to be from foundations, community groups, etc., rather than from the schools themselves (though I'm sure there are exceptions). In general, those types of scholarships are much smaller than universities' own scholarships.

From what I've seen of the financial aid process, parental income is the biggest driver of award amounts. And yes, outside of wealthy schools with large endowments, financial aid is mostly loans.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by randomguy » Fri Jan 22, 2016 10:25 pm

livesoft wrote:If my family with taxable income of less than $100,000 a year can afford it, then I think anyone can afford it.

My son attends a well-regarded state university. The cost is about $20K a year including room & board & books & travel. He can earn $6,000 of that easily in 12 months and the AOTC will pay $2,500 of it.

As for more expensive universities, the OP has saved quite a lot of money already as noted in other posts. Their portfolio could be gaining $300,000 a year by the time their kids start attending college. In any event, the 401(k) contributions of a two-earner family could be $36,000 to $48,000 a year. That seems about the annual cost of college, doesn't it?



OP can pay for elite private schools. He doesn't want to.

There was a whole thread trying to explain to him why tax advantaged savings were better than 529s. He didn't want to hear about it because it turned out he had invested in 529 years before and that whole point of the thread was not to help him out but to try and reassure him that he made the right choice. Having the assets show up on FASFA (i.e. that 300k for 3 kids really hurts the first one. The EFC is like 17k for that level of assets. For the last kid it is more like 5.5k) instead of in a place that doesn't get reported matters a bit if the school cost is 50k and the income level EFC is 30k.

Do a little optimization for FASFA might make sense (pay 100k off the house instead of keeping it in taxable) but in general extremes (trying to hide 2 million in assets) just doesn't work out.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by ilovepiano » Fri Jan 22, 2016 10:29 pm

I don't spend too much time on the forums but I find the tone of some of your posts kind of prickly ?rude. I thought the original poster asked a valid question and I didn't get a sense of over entitlement from the post, it's a fair question and fair concern.

That being said college in many ways is a huge scam and ripoff. A good investment in general, sure, but the costs are excessive and from my understanding due to high administrative expenses and unnecessary spending on part of the college. For certain majors college is especially a rip off. I have significant savings for college I will not get any aid for sure.


livesoft wrote:We paid full sticker price for one of the most expensive private elite universities in the USA. There was no financial aid. Basically, if you have any money anywhere, the college assumes it belongs to them. But we could afford it because the stock market went up almost every year and our portfolio went up by many times the annual cost of college.

So, I don't think money is your problem, but your sense of entitlement might be. You are not going to get financial aid and your family will have to pay full sticker price for any colleges they attend. So what? College is inexpensive anyways. Don't fall for the media hype that college is not affordable for upper middle class wealthy families like yours.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by KlangFool » Fri Jan 22, 2016 10:31 pm

OP,

1) You do not save enough. If you do, you can pay for your children's college education from your cash flow. Then, you do not need to talk / discuss about financial aid.

2) You paid too much tax by contributing to 529 plan.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by itstoomuch » Fri Jan 22, 2016 11:29 pm

We were able to Allow, The Only, to The most $$$$ private. Full pay, save 1/6 tuition, institutional grant, to compete against another university.

IMO, its far better to be able to BUY your way in, rather rely on the good graces of the scholarship committee or finance the amount. 8-) :mrgreen: :annoyed

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by betterfinances » Sat Jan 23, 2016 1:10 am

randomguy wrote:OP can pay for elite private schools. He doesn't want to.


Ding ding ding. Winner winner chicken dinner. It's not that I can't pay $60k a year for elite private school, it's that I don't want to pay $60k a year for elite private school. And it irks me that others (who blew all of their money rather than saving) might be able to go there for very little cost.

There was a whole thread trying to explain to him why tax advantaged savings were better than 529s. He didn't want to hear about it because it turned out he had invested in 529 years before and that whole point of the thread was not to help him out but to try and reassure him that he made the right choice.


I still don't see why you do not include 529 as tax advantaged. Nor do I see another tax advantage vehicle that I can use for college savings, with the exception of perhaps I-bonds. Roth IRAs are tax advantaged just like Roth IRAs are tax advantaged. Please explain if I'm missing something.

The only option that was presented was:

a) Take a loan against a 401k and repay that loan when reaching retirement age (sounds like a bad idea)
b) Quit my job, rollover the 401k to a Rollover IRA and then roll that to a Roth IRA and then withdraw the contributions to pay for college. (Too complex and quitting my job sounds like a bad idea.)

Do a little optimization for FASFA might make sense (pay 100k off the house instead of keeping it in taxable) but in general extremes (trying to hide 2 million in assets) just doesn't work out.


Yeah, I don't see that I can play the minimize-the-EFC game in my situation.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by betterfinances » Sat Jan 23, 2016 1:14 am

KlangFool wrote:OP,

1) You do not save enough. If you do, you can pay for your children's college education from your cash flow. Then, you do not need to talk / discuss about financial aid.



I save plenty. I can pay for children's college education from cash flow.

My objection is not that I cannot afford college (I never said that). My objection is that those who pay full price for college in some (many?) cases subsidize those that receive financial aid. This is true in the state that I live in - a newspaper article by our well renowned publisher went through the records and found that the full pay tuition covered more than 100% of the cost of education, and that the extra money was used to provide scholarships to those that were needy. That is what irks me.

2) You paid too much tax by contributing to 529 plan.


This is a flat out wrong statement. The 529 plan is a tax advantaged plan where money is invested in the stock market. I am savings thousands of dollars of taxes by putting it into a 529 rather than putting it into a taxable account.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by Pdxnative » Sat Jan 23, 2016 1:45 am

op, are you really upset that some deserving kids may get the help they need to attend college? I don't get it, but that's probably not a fruitful path for discussion. You ask what you could do, so I'll share my two cents: read to your kids a lot, encourage them to read challenging books, and give them unlimited access to books when they are young. Encourage them to take challenging courses when they reach high school. Bright kids with good grades and test scores will have access to merit money at many schools. Many can (though maybe shouldn't) earn enough credits in high school through ap or Ib to skip a year of college. Merit money is not awarded based on need. Your kids can compete for that no matter how much you've saved. Many small private schools and state schools are falling all over themselves to attract those kids.

Now, at many of the most competitive private schools there is no merit aid. But honestly, I'm not sure you want to begrudge a kid who makes it into Yale the chance to study there? I would think if your kid gets in, you'd be relieved that financing isn't an issue, as it might be even for those who get a lot of need based aid.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by letsgobobby » Sat Jan 23, 2016 1:51 am

klangfool is right, you definitely are paying too much in tax by using the 529, because you do not max out your retirement accounts. That means you are unnecessarily paying tax when you could have saved thousands of dollars.

klangfool is also correct that you are not saving enough. We know that because you say that if you stopped saving, you would qualify for need based aid. Also because you are not maxing out your retirement accounts. So, keep saving.

To answer question #1, what can you do to make college more affordable for your family, you should save more.

To answer question #3, yes, you should keep saving money.

Now if you just wanted to complain about your perception of equitability in college finances, that's probably non-actionable and this thread will get locked.

In all seriousness, you can never save too much money. It is nearly always better to save more than less. If you save too much and decide later not to spend it all (on college or anything else), I"m sure you'll be happy to have the money.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by rbaldini » Sat Jan 23, 2016 2:04 am

Seems to me that the answer to the post title is "no." You don't need help paying for college because you have a lot of money. Isn't this a good thing?

Isn't this kind of like saying "I wish I had a lower income so I could get more help from the government and pay less tax" ? Yes, high taxes suck, but you still keep more money by having a higher income. Correct me if I'm reading this situation wrong - I'm not trying to be dismissive.

Sorry I can't help answer any of the specific questions in the post itself.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by betterfinances » Sat Jan 23, 2016 2:13 am

letsgobobby wrote:klangfool is right, you definitely are paying too much in tax by using the 529, because you do not max out your retirement accounts. That means you are unnecessarily paying tax when you could have saved thousands of dollars


Can you please show the math behind this? There are a few people here that consider the 529 tax inefficient. I don't understand the rationale because according to my math they are just as efficient as retirement accounts (401k or Roth IRA).

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by curiouskitty » Sat Jan 23, 2016 2:27 am

Pdxnative wrote:op, are you really upset that some deserving kids may get the help they need to attend college? I don't get it


Yea this thread is upsetting :(

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by itstoomuch » Sat Jan 23, 2016 2:41 am

It's no secret that full payors subsidize the less able to afford the bill.
Our state's universities and I'm sure that other state's have said the same thing AND they also say that they actively recruit foreign students, especially those from China.

DS' s most expensive university, even raised tuition for the express purpose to fund scholarships. IRRC, there wasn't too much blowback.
The Fafsa, the College Boads Profile, HS recommendations, SAMM reports, And two years complete tax forms, seem to weed out the slackers. :oops:

I also doubt that students from slacker families are able to attend CalTech or MIT. There are No shortage of full pay families with exceptional children.
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Re: Am I hurting myself by saving too much? (re: college funding)

Post by HopeToGolf » Sat Jan 23, 2016 3:00 am

Betterfinances

Yes, saving money and having a good income hurts your chances at financial aid that does not involve loans. Other than your kids being smart and desirable(star athlete, elite pianist, etc.) you will pay full freight if you have the money. Yes, people that own businesses have ways to save and lower their income better than W2 employees. Yes, that business owner may make more than you but he will pay less for college.

You have an alternative....spend your savings and ensure you have low income during the years your kids are in college. I am sure there is a way to use an EFC calculator to figure out how much you want to pay, spend down your assets, temporarily retire during the years your kids are in school, then resume your career and save enough to have the retirement you desire. Sounds like a bad plan but it could work.

BTW, glad to see no one took Livesoft's bait..college "inexpensive" = crazy talk and pure hilarity.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by sambb » Sat Jan 23, 2016 5:05 am

ilovepiano wrote:I don't spend too much time on the forums but I find the tone of some of your posts kind of prickly ?rude. I thought the original poster asked a valid question and I didn't get a sense of over entitlement from the post, it's a fair question and fair concern.

That being said college in many ways is a huge scam and ripoff. A good investment in general, sure, but the costs are excessive and from my understanding due to high administrative expenses and unnecessary spending on part of the college. For certain majors college is especially a rip off. I have significant savings for college I will not get any aid for sure.


livesoft wrote:We paid full sticker price for one of the most expensive private elite universities in the USA. There was no financial aid. Basically, if you have any money anywhere, the college assumes it belongs to them. But we could afford it because the stock market went up almost every year and our portfolio went up by many times the annual cost of college.

So, I don't think money is your problem, but your sense of entitlement might be. You are not going to get financial aid and your family will have to pay full sticker price for any colleges they attend. So what? College is inexpensive anyways. Don't fall for the media hype that college is not affordable for upper middle class wealthy families like yours.



the OP has a valid question, and whatever people spent historically is so irrelevant. College costs are different now.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by LiveSimple » Sat Jan 23, 2016 5:25 am

If you / your spouse work in a decent job as a professional, professor, sales, then forget about the need based aid.
I do not think, the savings in 529 impacts more than your salary and taxable investments.

Enjoy life, earn more, save more and give some to your kids education, it is all part of the system.

If you really want the need based aid, which may be a loan as well, then you should take up a low paying job for many years and for sure when your kids are in college.

Disclosure : Submitting FASA for my son, this week. Will review aid (if any) in March / April :D

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by ks289 » Sat Jan 23, 2016 6:15 am

betterfinances wrote:
letsgobobby wrote:klangfool is right, you definitely are paying too much in tax by using the 529, because you do not max out your retirement accounts. That means you are unnecessarily paying tax when you could have saved thousands of dollars


Can you please show the math behind this? There are a few people here that consider the 529 tax inefficient. I don't understand the rationale because according to my math they are just as efficient as retirement accounts (401k or Roth IRA).


You are deferring tax on 401k contributions which will probably be withdrawn at a lower rate. That is where the strategy is potentially tax inefficient.

Of course the 529 is tax exempt so the vehicle is not tax inefficient in itself, but the overall strategy of paying tax on that income that could have gone to 401k could result in your paying more taxes in the end. It is extra detrimental if you do not end up using all of the 529 money and end up paying the penalty on earnings too.

Your issues with financial aid also highlight a potential disadvantage of 529 vs retirement accounts. I understand the fairness sentiments. However, I believe that on balance it is worthwhile to give people in need the opportunity to attend college, and unfortunately it is impossible to eliminate some people using methods that take advantage of the system.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by ThatGuy » Sat Jan 23, 2016 6:19 am

livesoft wrote:So, I don't think money is your problem, but your sense of entitlement might be. You are not going to get financial aid and your family will have to pay full sticker price for any colleges they attend. So what? College is inexpensive anyways. Don't fall for the media hype that college is not affordable for upper middle class wealthy families like yours.


Bingo.

UC Berkeley costs $13,432 in tuition and fees. That's an absolute steal for the name brandness (I know it's not a word). The University of Michigan costs $15,602 for upper division tuition & fees. Georgia Tech is $12,204.

That's just really, really cheap for the education reputation you get. What costs real money is the room & board, but it should be no surprise that rent and food is expensive, particularly in a place like Berkeley.

It's a persistent myth that college is expensive. Sure, you can spend a ton of money at Harvard. Or you can get a prestige name for much less; all it takes is a modicum of research into whatever field your child is interested in.
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Re: Am I hurting myself by saving too much? (re: college funding)

Post by homebrewer » Sat Jan 23, 2016 6:58 am

There are a bunch of schools that are great that are not private. I went to the University of Florida during the Spurrier years....that experience I would love for my son to have. My sister was there during Meyer. I got a scholarship provided by the state so some was paid for. I worked full time to make up for the rest. To save money I even ate with the Hare Krishnas who gave free lunch daily on campus for a small donation, plus I learned something. Some of the best 4 years of my life. I then went to pharmacy school....my pops was probably making around 300k/year and had sizeable assetts. I was still able to get loans, not that he couldn't pay for it, but I knew I would study just a little bit more than usual if I had 125k hanging over my head. Just my story...it will work out for you when its time to cross that bridge. Oh....and this was my first post....Im glad to be on the forum.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by DoTheMath » Sat Jan 23, 2016 7:47 am

ThatGuy wrote:
livesoft wrote:So, I don't think money is your problem, but your sense of entitlement might be. You are not going to get financial aid and your family will have to pay full sticker price for any colleges they attend. So what? College is inexpensive anyways. Don't fall for the media hype that college is not affordable for upper middle class wealthy families like yours.


Bingo.

UC Berkeley costs $13,432 in tuition and fees. That's an absolute steal for the name brandness (I know it's not a word). The University of Michigan costs $15,602 for upper division tuition & fees. Georgia Tech is $12,204.

That's just really, really cheap for the education reputation you get. What costs real money is the room & board, but it should be no surprise that rent and food is expensive, particularly in a place like Berkeley.

It's a persistent myth that college is expensive. Sure, you can spend a ton of money at Harvard. Or you can get a prestige name for much less; all it takes is a modicum of research into whatever field your child is interested in.


Exactly. Those are in-state resident rates, but ThatGuy's point stands. Bogleheads of all people should know that it pays to shop around and look for value. I don't see much moaning about the full retail on a Tesla or BMW. Or that BMW may actually use some of the money you give them to subsidize discounts for others. If a BMW is out of your budget or not worth the price in your opinion, you are welcome to buy a sensible Toyota which will do you nearly as well.

If you can afford to pay for the name brand, consider yourself blessed that you can do so! The concern about college pricing should be directed at the people at the bottom who are priced out entirely.

Gill wrote:I have trouble agreeing with Livesoft's on this one. I spent seven years getting two degrees, also at two of the most elite universities. At today's costs, this would run over half a million dollars. It cost my father about $35,000 many years ago. Do you really feel this is affordable by anyone but the wealthy high income families?
Gill


For a little perspective I note you could use the same numbers to describe the price of my parents' first house and the comparably sized one they live in today. College costs are an issue, but they're not as all-out alarming as some seem to believe.
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Re: Am I hurting myself by saving too much? (re: college funding)

Post by KlangFool » Sat Jan 23, 2016 9:13 am

Folks,

1) OP is at 28% marginal tax rate. And, he did not fully fund his Trad. 401K.

A) Contribute $1,000 to 529 and pay $280 in tax.

B) Contribute $1,280 to Trad. 401K

In both cases, (A) and (B), it costs the OP the same amount of money. But, OP choose to do (A) and get less money in the process.

2) OP assume that he will be working with the same employer for the next 20 to 30 years. Aka, all the way towards retirement. He will never be unemployed too. Because of that, he will NEVER have the opportunity of rollover over his 401K to an Rollover IRA and do Roth conversion.

3) Somehow, in spite of (1) and (2), OP believe that his retirement is fully funded and he will retire at 28% marginal tax rate. Aka, he will have higher or same tax rate at retirement as his current tax rate.

In summary, the numbers do not add up.

KlangFool

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by just frank » Sat Jan 23, 2016 9:14 am

Paying for college is a value proposition just like anything else.

Would I pay $60k a year for a degree that would not get my child a decent (or any) job after graduation....yar, I wouldn't be excited about it.

If my kid needed $40k/yr to get started on a great six figure career path with a great network of peers and mentors, doing something she loves, then....no brainer, where do I pay?

If my daughter got in to a lower tier school with a full merit scholarship (because the school wants to use my daughter to 'pull up their rankings') then....I'd still pay the $40k for the more elite place. There is no free lunch...a 'free school' has a value proposition problem.

That said, there are sweet spots for value...both among elite schools and well-ranked public colleges.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by Tamarind » Sat Jan 23, 2016 9:27 am

OP, I hear that you not only can afford to send 3 kids to name-brand schools but also WANT to send your kids to name-brand schools. You don't even mind paying for name-brand schools, so long as you get the same price that's quoted for a kid whose parents were forced to choose between saving for retirement and saving for college and chose the way we often advise people to here.

That attitude bothers me, but also I think you are overlooking the opportunities that are available for you and your kids that aren't for them.

For one thing, your kids are actually more likely to be granted merit aid than the many of those middle & lower class kids (who can't afford to go any other way). Unless you're genetically unlucky, your kids will show the benefits of 18 years of enrichment, decent teachers, prep materials, and you demonstrating the value of a good education.

You'll also save compared to the hypothetical middle-class family with low assets because you can:
[*]Avoid paying interest entirely by cash-flowing the college costs
[*]Get much lower-rate loans because they can have significant cash collateral

Then there are the extra benefits you can provide your kid:
[*]Whatever loans you take out can be in your kid's name, then you pay them off, jump-starting kid's credit history
[*]Your kid may be able to devote themselves full-time to academics while at college rather than working, which improves educational outcomes and shortens time in college
[*]Your kid can start their professional life without dragging a massive lump of debt around behind them

I was a coddled kid of an upper-middle class family myself. If my parents shorted their retirement, they could have paid for me to go to an Ivy.

My parents told me:
"You can go to any college you want! We can pay for you to go to [highly regarded state school]. If you go there or somewhere that costs the same, you won't pay a dime. If you get merit aid and/or go somewhere else so it costs less, we will gift you the money you save us. If you go somewhere that costs more, you will have to make up the difference."

So what did I do when presented with this awesome good luck? I worked my ass off and completed International Baccalaureate so I'd have college credit in case I needed to shorten my stay (and because it was fun). I applied for every big and small scholarship I could find, whether or not I thought I could get it. I applied to cheaper schools than I would have otherwise. When I was accepted by [prestigious private school] (no merit aid) and [highly regarded state school] (with full-tuition merit aid), the choice was not difficult for me.

I hustled, saved my parents money, and pocketed the difference. That college credit let me skip the general education requirements and explore courses I wouldn't have had time for otherwise. I didn't have to work during school, and graduated with zero debt and a cushion to keep me going while I hunted for a job. Since I graduated the spring before Lehman Brothers collapsed, this turned out to be a very good thing. Learning to hustle kept me employed even though my first 2 employers went out of business. It taught me I was stronger than I thought I was.

I guess I am wondering, OP, what your kids can do to help you solve this problem? How can they help to make sure you don't end up paying full-freight for a fancy private school?

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by wolf359 » Sat Jan 23, 2016 9:30 am

DonDraper wrote:Colleges are starting to offer options to lower the overall cost of tuition.

Rowan University in NJ just unveiled a program where you can attend the local community college for 3 years and in the fourth year attend Rowan for a total cost of only $25k.

University of Maine is offering out of state students a tuition price equal to the student's home state tuition.

My child is only 9 so I'm hoping this is just the start of huge trend.


Also gear your child up to take as many AP classes as possible in high school. That's a stealth merit scholarship program. Every college credit they can test out of in high school is one less that you have to pay for at college rates.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by randomguy » Sat Jan 23, 2016 9:36 am

sambb wrote:

the OP has a valid question, and whatever people spent historically is so irrelevant. College costs are different now.


You need to read the first 3 or 4 threads the OP has done on this same issue to understand why people are a bit tired of answering it:)

The first rule of saving so that it doesn't affect financial aid? Don't use a taxable/529 when you can save in a 401(k)/ROTH. OP doesn't want to hear that though. He instead obesses about not being able to access the money until 59.5.

Second rule is to make sure you don't have much income during the period. OP is up in the 28%+ bracket. That means your EFC is like 50k+ with 0 assets. Your savings aren't hurting your financial aid prospects. Your income is. Unless you plan on retiring before college, your savings don't change anything.

Third rule is to have triplets. College cost goes way up but your EFC stays the same.:)

The big complaint here is that FASFA is unfair for some defintion of unfair. Thats a general problem with any price discrimination system. I used to get annoyed whenever I though about my neighbors paying 1/3 the property tax that I did for the same services.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by stoptothink » Sat Jan 23, 2016 9:42 am

ilovepiano wrote:I don't spend too much time on the forums but I find the tone of some of your posts kind of prickly ?rude. I thought the original poster asked a valid question and I didn't get a sense of over entitlement from the post, it's a fair question and fair concern.

That being said college in many ways is a huge scam and ripoff. A good investment in general, sure, but the costs are excessive and from my understanding due to high administrative expenses and unnecessary spending on part of the college. For certain majors college is especially a rip off. I have significant savings for college I will not get any aid for sure.


livesoft wrote:We paid full sticker price for one of the most expensive private elite universities in the USA. There was no financial aid. Basically, if you have any money anywhere, the college assumes it belongs to them. But we could afford it because the stock market went up almost every year and our portfolio went up by many times the annual cost of college.

So, I don't think money is your problem, but your sense of entitlement might be. You are not going to get financial aid and your family will have to pay full sticker price for any colleges they attend. So what? College is inexpensive anyways. Don't fall for the media hype that college is not affordable for upper middle class wealthy families like yours.


The OP has asked this question more than once on this board, and I totally agree with Livesoft. At this point, pretty sure OP has realized there is no answer, just sounds like they want to complain more that they'll pull full freight for their children's college because they are (relatively) wealthy.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by livesoft » Sat Jan 23, 2016 9:50 am

I had no quibble with ilovepiano's comment. ilovepiano had not read the other posts by the OP, so in the sole context of this thread my comments would appear to be rude and prickly. OK, they were rude and prickly. The follow-on posts in this thread are revealing, too.
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Re: Am I hurting myself by saving too much? (re: college funding)

Post by 10YearPlan » Sat Jan 23, 2016 9:59 am

I can see where you're coming from. We will be in the same boat, albeit a smaller one as we only have two kids...
Personally, we're not forgoing the trips and the cars. We're not rolling around in dollar bills by any means, but we do make sure to take one great trip per year with the kids because it's a priority for us and we think it is good for the soul, even if it is not good for the wallet. My suggestion-find some balance that makes you feel less "put upon" now.

We save in a 529, but not aggressively. We save in taxable accounts, too. We won't, by design, have 100% of elite tuition for 4 years tucked away by the time my oldest will be ready for college in 8 years. And we're okay with that. We're planning to pay 95-100% of state school plus room and board...some will come from savings, the rest from cash flow. If they have a burning desire to go to an elite private school, I'd support it, but I am not sure I will be prepared to pay 100%. Maybe 75-80%. I do think we have an obligation to pay for college, the vast majority of it, in fact. But I also think kids should have some skin in the game, regardless of their parents' means.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by ThatGuy » Sat Jan 23, 2016 11:08 am

Look, if you really want the taxpayers to pay for your kids to go to college, have them join the military for at least 36 months. The Post 9/11 GI Bill is an awesome deal, a student going to school in San Francisco would have 100% of their tuition paid for as well as collect $4,116 per month for room and board.

The military academies are also free, and ROTC pays all or nearly all of the costs at other universities.

However, if you don't want to trade anything for a special deal and just want to whine about how life isn't fair for the rich, have at it.
Last edited by ThatGuy on Sat Jan 23, 2016 11:25 am, edited 1 time in total.
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Re: Am I hurting myself by saving too much? (re: college funding)

Post by KlangFool » Sat Jan 23, 2016 11:23 am

betterfinances wrote:
KlangFool wrote:OP,

1) You do not save enough. If you do, you can pay for your children's college education from your cash flow. Then, you do not need to talk / discuss about financial aid.



I save plenty. I can pay for children's college education from cash flow.

2) You paid too much tax by contributing to 529 plan.


This is a flat out wrong statement. The 529 plan is a tax advantaged plan where money is invested in the stock market. I am savings thousands of dollars of taxes by putting it into a 529 rather than putting it into a taxable account.


betterfinances,

1) <<I save plenty. I can pay for children's college education from cash flow.>>
2) <<I am savings thousands of dollars of taxes by putting it into a 529>>

You are in 28% marginal tax rate. 529 is
AFTER TAX
contribution. You pay 28% tax for every dollar that you put into 529. Now, if you can pay for your children's college education from cash flow, why do you CHOOSE to pay 28% tax and contribute to 529? No, you pay a lot more taxes by contributing to 529 instead of trad. 401K. You were wrong to say that you save taxes via 529. And, the more that you try to defend yourself, the more ridiculous that you sound.

My goal is not to prove you wrong. My goal is to educate others on

1) Why 529 contribution may not be advantageous to them.

2) When people separate the money into separate pools: retirement, savings, college funding, they may get a sub-optimal result.

This is the trap that you got yourself in. Somehow, you do not want to use Roth IRA, 401K, and /or taxable account to finance college education when it could cost a lot less for you. 529 is the ONLY answer for you. And, it costs you 28% extra.

Thank you for paying more taxes.

KlangFool

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by Clever_Username » Sat Jan 23, 2016 12:31 pm

itstoomuch wrote:It's no secret that full payors subsidize the less able to afford the bill.
Our state's universities and I'm sure that other state's have said the same thing AND they also say that they actively recruit foreign students, especially those from China.


Do you think they're doing this to give free education to foreign students, or do you think it's because the foreign students pay even more than domestic students, qualify for less aid, and subsidize the domestic ones?

Recruiting foreign students -- and expanding the school to have space for them -- was how some public schools, such as the Oregon State University, were able to avoid cutting spots or raising tuition for domestic students.

Don't worry so much about what others are getting. Worry about how to get what you want. It's something you can act on and will make you less upset.
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Re: Am I hurting myself by saving too much? (re: college funding)

Post by R2 » Sat Jan 23, 2016 1:21 pm

I have been lurking the ongoing debate on multiple threads, and have an additional comment.

One item that has not been discussed is the scenario where unforeseen events impacts income during the college years.

If one wants to guard against that scenario, one should definitely fund 401K/IRA ahead of the 529 plan. That way, if you truly need help, you are better positioned to receive it.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by cherijoh » Sat Jan 23, 2016 2:09 pm

stoptothink wrote:
betterfinances wrote: 2) For those who are closer to the college years than I am, am I incorrect in believing that need based aid is a good thing (i.e., in reality is it mostly loans which do not lower the cost of college, just spread it out over more years)


Well, I just completed my education 3yrs ago and I have two younger siblings in college right now; you are stressing about nothing, currently need based aid is nothing but loans unless you are truly low income and I highly doubt that is changing anytime in the near future. Yes, a few private universities have a huge endowment and provide actual financial aid to students from not wealthy families (ie. Harvard and Stanford), but they are few and far between. By saving now and setting yourself for financial independence, you are far more likely to be able to cashflow their education and IMO that is by far the best scenario. Trying to play FAFSA tricks or spending now to try to get future aid will almost assuredly result in worse results.

...and I kind of agree with Livesoft, money isn't an issue but your sense of entitlement might be. Even if it was possible to game the system and procure financial aid for your children, these programs were intended to assist families with actual financial need.


+1

Need-based no loan financial aid is offered by only a small percentage of universities and they have a higher number of applicants/ placement than other institutions of higher learning. You might be interested in this thread. Look for the post by NotWhoYouThink on the second page. It offers a very good synopisis of different financial aid types.

One mistake that some higher income people make is to save in a 529 before maxing out their retirement funds, so then they are on the hook for more college expenses without having adequate resources saved for retirement. I believe in some -- but not all -- financial aid formulas 401k and IRAs assets are excluded from expected parental contribution. If you don't have enough money to cash flow college and still max out retirement accounts, you are in better shape to cut back on your contributions if you have maxed them out in the past.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by dc81584 » Sat Jan 23, 2016 2:20 pm

This is indeed a stupid thread. I can't even decide which side I'm on because the statements on both sides are so incredibly dumb.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by Twins Fan » Sat Jan 23, 2016 2:32 pm

rbaldini wrote:Isn't this kind of like saying "I wish I had a lower income so I could get more help from the government and pay less tax" ? Yes, high taxes suck, but you still keep more money by having a higher income. Correct me if I'm reading this situation wrong - I'm not trying to be dismissive.


Exactly.

OP, just stop working, spend all your savings, and let the gov't and taxpayers support you..... because some others do it and it irks you. :confused :oops:

OP, you have created many threads pretty much covering the same topic or variations of, and keep getting the same advice. How many threads do you need to start on this???

Why do you seem to have it in your mind that your kids WILL go to an Ivy League school? What if they don't want to? Will they have any say in this, or will it be you saved for this and they're going to go to..... ??

As in all these threads.... BALANCE is key. Good luck in finding it, OP.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by jackholloway » Sat Jan 23, 2016 2:42 pm

KlangFool wrote:
betterfinances wrote:
KlangFool wrote:OP,

1) You do not save enough. If you do, you can pay for your children's college education from your cash flow. Then, you do not need to talk / discuss about financial aid.



I save plenty. I can pay for children's college education from cash flow.

2) You paid too much tax by contributing to 529 plan.


This is a flat out wrong statement. The 529 plan is a tax advantaged plan where money is invested in the stock market. I am savings thousands of dollars of taxes by putting it into a 529 rather than putting it into a taxable account.


betterfinances,

1) <<I save plenty. I can pay for children's college education from cash flow.>>
2) <<I am savings thousands of dollars of taxes by putting it into a 529>>

You are in 28% marginal tax rate. 529 is
AFTER TAX
contribution. You pay 28% tax for every dollar that you put into 529. Now, if you can pay for your children's college education from cash flow, why do you CHOOSE to pay 28% tax and contribute to 529? No, you pay a lot more taxes by contributing to 529 instead of trad. 401K. You were wrong to say that you save taxes via 529. And, the more that you try to defend yourself, the more ridiculous that you sound.

My goal is not to prove you wrong. My goal is to educate others on

1) Why 529 contribution may not be advantageous to them.

2) When people separate the money into separate pools: retirement, savings, college funding, they may get a sub-optimal result.

This is the trap that you got yourself in. Somehow, you do not want to use Roth IRA, 401K, and /or taxable account to finance college education when it could cost a lot less for you. 529 is the ONLY answer for you. And, it costs you 28% extra.

Thank you for paying more taxes.

KlangFool


Traditional 401k plans are not always the correct choice. They depend on being able to withdraw, which may only be allowed at separation of service, or take 401k loans that have an implicit immediate call option if your job ends.

Other means of saving have income limits and are subject to legislative change.

they still may be the correct choice, but that requires actual analysis, rather than a flip answer.

The OP is correct to question whether putting $x in a taxable account, or $x in a 529 is the best vehicle for saving.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by KlangFool » Sat Jan 23, 2016 3:11 pm

jackholloway wrote:
Traditional 401k plans are not always the correct choice. They depend on being able to withdraw, which may only be allowed at separation of service, or take 401k loans that have an implicit immediate call option if your job ends.

Other means of saving have income limits and are subject to legislative change.

they still may be the correct choice, but that requires actual analysis, rather than a flip answer.

The OP is correct to question whether putting $x in a taxable account, or $x in a 529 is the best vehicle for saving.


jackholloway,

We are not discussing in general. I am disputing the OP's claim that he save tax by contributing to 529 instead of Trad. 401K plan.

<<but that requires actual analysis, >>

We have all the relevant information posted by OP. Are you claiming that he is better served by contributing to 529?

A) He can pay the college tuition by his cash flow.

B) He is in 28% marginal tax rate.

C) He did not fully fund his Trad. 401K.

D) He fund his 529 plan.

In summary, he pay 28% tax for all his contribution to 529 plan even though he do not need the money.

KlangFool
Last edited by KlangFool on Sat Jan 23, 2016 3:34 pm, edited 1 time in total.

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Re: Am I hurting myself by saving too much? (re: college funding)

Post by letsgobobby » Sat Jan 23, 2016 3:28 pm

There are other ways to withdraw money from a 401k.

Locked