Should we save for our son's college?

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guliver
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Should we save for our son's college?

Post by guliver » Wed Mar 28, 2018 8:36 am

I'm trying to understand what most 'reasonable' people in our situation do. We have a 18-months old son, and make $200K/year with one of us in grad school, we expect to earn ~$350K/year soon. We're foreign, and we (or our parents) never paid tuition in our life. So we're not used to the idea. Should we save for our son? What are the advantages of saving on his name? Could we just pay his tuition from our savings when the day comes, or would we have to pay gift tax? I asked some older American friends, and they told their kids from an early age that they're responsible for financing their college education. It's a principle for them, to educate them for financial independence. All their kids are successful BTW, and went to great schools. I'm lacking the bigger picture - what do most people in our income level do?

livesoft
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Re: Should we save for our son's college?

Post by livesoft » Wed Mar 28, 2018 8:39 am

Your income is high enough that you can do whatever you want.

However, a 529 plan is for wealthy people and HENRYs like you: You get a tax break for saving at least something for college expenses.

Besides, what else are you going to do with the money? You aren't thinking of buying whole life insurance, are you?

HENRY = High earners not rich yet.
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lthenderson
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Re: Should we save for our son's college?

Post by lthenderson » Wed Mar 28, 2018 8:49 am

We save for our kids college mostly for the tax break it provides us. Every state is different but in my state each spouse can deduct around $3600 per child per year from their state taxes.

Hillview
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Re: Should we save for our son's college?

Post by Hillview » Wed Mar 28, 2018 8:52 am

my experience is that yes financially savvy people in your situation save for a 529. A question could be what sort of school would you want to send your child to and do you want them to have any loans for this. Our personal view is that we don't want to have our kids take out loans and want them to be able to go to any school (this means we need to save a LOT) but friends are saving for a state school (not a private school) which is another reasonable option.
Some calculators to look at:
https://www.americanfunds.com/individua ... calculator
https://www.fidelity.com/529-plans/calculators-tools
https://vanguard.wealthmsi.com/csp.php

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tainted-meat
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Re: Should we save for our son's college?

Post by tainted-meat » Wed Mar 28, 2018 8:56 am

Since you're asking, yes you should save for your child's college education if you are making that kind of money.

There are many ways to instill good principles without making son finance his own education.

Now if you were making 35K, then I would say do the best you can but it's probably not realistic that you can fund his education.

augryphon
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Re: Should we save for our son's college?

Post by augryphon » Wed Mar 28, 2018 9:01 am

I was able to fund my son's undergrad and law school through a 529, and some from cash flow. It is the most rewarding thing I've ever done. To know that he walked out into the real world without $150k debt made it worthwhile. My wife and I were also blessed to have our parents pay for our college.

I have already made it clear to my son that our family tradition is to pay it forward!

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Re: Should we save for our son's college?

Post by Broken Man 1999 » Wed Mar 28, 2018 9:15 am

I am pretty sure you will get a wide range of opinions on the question about providing funds for your children's education.

I believe strongly in education, and we provided most of the funds for our children's education, they contributed to their housing costs and other living expenses.

I understand some people's beliefs that having skin in the game by having their children paying some costs, but personally I think it's overrated. All of my daughters were good students and I believed, correctly as it turned out, they would apply themselves as they did in high school. Honestly, I wanted them totally focused on the task at hand, not worrying about the costs of college. They worked some, but not that much, and that was OK by me.

There are many ways to keep college expenses in check, but at the end of the day, college is more expensive than when I attended, or my daughters attended, so having much skin in the game can certainly take more effort than it used to take.

Your income should make it easier than most to fund your children(s) education, but only you can decide from within a range of options you have available.

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Re: Should we save for our son's college?

Post by letsgobobby » Wed Mar 28, 2018 9:28 am

guliver wrote:
Wed Mar 28, 2018 8:36 am
I'm trying to understand what most 'reasonable' people in our situation do. We have a 18-months old son, and make $200K/year with one of us in grad school, we expect to earn ~$350K/year soon. We're foreign, and we (or our parents) never paid tuition in our life. So we're not used to the idea. Should we save for our son? What are the advantages of saving on his name? Could we just pay his tuition from our savings when the day comes, or would we have to pay gift tax? I asked some older American friends, and they told their kids from an early age that they're responsible for financing their college education. It's a principle for them, to educate them for financial independence. All their kids are successful BTW, and went to great schools. I'm lacking the bigger picture - what do most people in our income level do?
Up to you.

Please check the costs of the schools you might hope for your kids to attend; and check out the history of price inflation. Then run the student aid calculators you can find on the internet to see how much financial aid your kids will receive (hint: none). Then read about the average debtload of the current college graduate, and the current professional school (med, law, business) graduate.

Then make your decision.

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Watty
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Re: Should we save for our son's college?

Post by Watty » Wed Mar 28, 2018 9:29 am

guliver wrote:
Wed Mar 28, 2018 8:36 am
I'm lacking the bigger picture - what do most people in our income level do?
Frankly with your income, or even half your income, it would seem unusual if you were not willing to pay for four years at a state university including tuition, room and board(food), books etc but as a student your kid would still need to pay for things like their clothing and spending money.

Things like paying for private school, out of state school, graduate school, cars, or taking more than four years to graduate are less clear and you may or may not be willing to pay for that. Some things like that you can decide when your kid is ready to go to college.

That could come with all sorts of limitations like that they work hard, stay out of trouble, and pick a major that is likely to lead to a respectable job, etc so the college money would not been seen as an unconditional expectation that your kid could abuse.

If your income was lower then there would not be any stigma in not being able to pay for that.
guliver wrote:
Wed Mar 28, 2018 8:36 am
What are the advantages of saving on his name?
You do not want to put the money in his name since when he gets older the money would be his and he could use it for whatever he wants.
guliver wrote:
Wed Mar 28, 2018 8:36 am
I asked some older American friends, and they told their kids from an early age that they're responsible for financing their college education.
A lot depends on your friends finances. If they knew that they would not be able to comfortably pay for college then it is important to let the kids know that early so that the kids can be prepared to handle their own college expenses.

Some kids will do great under pressure but a lot of kids will not make it through college if they are put under too much financial pressure.

I may be biased but my son is smart but he was never a real good student. We were able to pay for him to go to a state university and he got a Computer Science degree and is doing very well in his career now. When he was in college his grades were mediocre and he really struggled getting through some of the advanced math classes he had to take and had to take some of them multiple times but he finally got through them. We were able to financially support him through this and I am pretty sure that without our support that he would not have finished his degree.
guliver wrote:
Wed Mar 28, 2018 8:36 am
Could we just pay his tuition from our savings when the day comes, or would we have to pay gift tax?
Paying college cost out of your other funds, or your earnings while he is in college is possible and you would not have to pay a gift tax on that. You may have to pay capital gains taxes if you sell an investment to pay for college expenses.
Last edited by Watty on Wed Mar 28, 2018 10:04 am, edited 2 times in total.

fittan
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Re: Should we save for our son's college?

Post by fittan » Wed Mar 28, 2018 9:30 am

Yes...start saving for your kid now. There's a lot of IFs but the "risk" for saving outweighs the "risk" for not. Besides you get tax advantages and deduction, what's not to like.

Besides we're not talking big money. Use this calculator https://www.savingforcollege.com/calcul ... calculator

If you want to help kid 25% of the way, save $55/month now.
If you want to help kid 50% of the way, save $220/month now.
If you want to help kid 75% of the way, save $388/month now.
If you want to help kid 100% of the way, save $558/month now.

At your income...it's a drop in the bucket.

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Watty
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Re: Should we save for our son's college?

Post by Watty » Wed Mar 28, 2018 9:52 am

fittan wrote:
Wed Mar 28, 2018 9:30 am
Yes...start saving for your kid now. There's a lot of IFs but the "risk" for saving outweighs the "risk" for not. Besides you get tax advantages and deduction, what's not to like.

Besides we're not talking big money. Use this calculator https://www.savingforcollege.com/calcul ... calculator

If you want to help kid 25% of the way, save $55/month now.
If you want to help kid 50% of the way, save $220/month now.
If you want to help kid 75% of the way, save $388/month now.
If you want to help kid 100% of the way, save $558/month now.

At your income...it's a drop in the bucket.
That sounds high and it will vary a lot by how expensive a college you are willing to pay for.

If you Google something like "Your state university name" and "cost to attend" you will find a web page that the university. You can do this for several universities.

For example here is the big state university here in Georgia

https://www.admissions.uga.edu/prospect ... ition-fees

Which they say runs about $26,400 a year for an in-state student which is probably lower than average. The kid would likely not graduate until they are about 22 so the OP has over 20 years to spread that cost over, or they could easily pay each years cost out of their income since they have high income.

Jack FFR1846
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Re: Should we save for our son's college?

Post by Jack FFR1846 » Wed Mar 28, 2018 9:56 am

Sorry, but with this kind of ginormous income, you're probably just as well off asking if you should buy the kid a Maserati for his fully paid for college.
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DaftInvestor
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Re: Should we save for our son's college?

Post by DaftInvestor » Wed Mar 28, 2018 9:59 am

Regardless of what individuals believe - Here in the US - the government kind of assumes the parents, if they can afford to do so, will be helping out. Kids in the US aren't eligible for financial aid if there parents have good income. And costs for college in the US are far greater than most other countries.
Myself, and most folks I talk to, do believe in funding their children's education (some limit it to "public college/univerity tuition" others don't).. 529 plans are a great way to do this since the earnings are all tax free (opportunity for 20 years of tax free growth on your money). Some believe that their kids should pay for "part of it" - I don't.
It was always a goal of mine for my children not to graduate with the large debt burden I graduated college with so we started saving for college when our kids were born and now enjoy paying their cost with money that has grown tax-free.

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Re: Should we save for our son's college?

Post by bloom2708 » Wed Mar 28, 2018 10:02 am

Yes you should. Change/bend your family tree.

A few of my friends give me the "My parents never saved a cent for my college education, I'm not saving a cent for my kids..." line. Swell, great.

Sending your kids out in the world with $80k or more of college debt can be a "lesson" or it can just set them back for years. There is no agreement on this issue. Just options for you to consider.

You have a big income, save the money. You control the use/dispersion. We did a mix of taxable and 529.
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Re: Should we save for our son's college?

Post by Fess McGee » Wed Mar 28, 2018 10:15 am

Clearly your perogative but sending kids out into the world with avoidable debt doesn't seem like a good idea. My folks paid for all of undergrad and law school so I would feel like a gigantic piece of garbage if I didn't do the same, at least undergrad (given ridiculous tuition inflation since they footed the bill 20 years ago and us having 3 kids bunched together, I'm making no promises as to grad school but at the very least we have kid assistance as a line item in the retirement budget.)

Also, the state of IL lubes us over every chance it gets but the 20K deduction is nice.

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randomizer
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Re: Should we save for our son's college?

Post by randomizer » Wed Mar 28, 2018 10:18 am

Do it.
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Nate79
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Re: Should we save for our son's college?

Post by Nate79 » Wed Mar 28, 2018 10:22 am

Yes, save now for the future. Saddling kids with college loans is a crisis in this country and I will not do that to my child. As long as your retirement is being fully funded saving for your kids education is one of the best things you can do to them.

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Re: Should we save for our son's college?

Post by Afty » Wed Mar 28, 2018 10:31 am

With regards to gift tax: You can pay anyone's college tuition without incurring gift tax, as long as you pay the school directly. See https://www.irs.gov/instructions/i709#i ... 1964138384.
Educational exclusion. The gift tax does not apply to an amount you paid on behalf of an individual to a qualifying domestic or foreign educational organization as tuition for the education or training of the individual. A qualifying educational organization is one that normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. See section 170(b)(1)(A)(ii) and its regulations.

The payment must be made directly to the qualifying educational organization and it must be for tuition. No educational exclusion is allowed for amounts paid for books, supplies, room and board, or other similar expenses that are not direct tuition costs. To the extent that the payment to the educational organization was for something other than tuition, it is a gift to the individual for whose benefit it was made, and may be offset by the annual exclusion if it is otherwise available.

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mhadden1
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Re: Should we save for our son's college?

Post by mhadden1 » Wed Mar 28, 2018 10:46 am

Very occasionally I encounter the "on your own after high school" approach, but not very often. Far more commonly parents are happy to pay for college to the extent that they can. Obviously some paths, like the one to State U vs. Ivy League, are much cheaper.

Many state colleges in particular offer scholarships based on ACT/SAT scores and high school grades. Where I live the scions of the rocket scientists/software engineers/doctors very commonly qualify. Premature for the OP, but by age 14-15 these chances are becoming easier to estimate.
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Re: Should we save for our son's college?

Post by SRenaeP » Wed Mar 28, 2018 12:42 pm

Take my opinion with a grain of salt since I don't have (or want) children. I wouldn't save for college until after you've maxed out all tax-advantaged accounts available (e.g. 401k, IRA, HSA, etc.). Your son can always borrow for college but you can't borrow for retirement.

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TheDDC
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Re: Should we save for our son's college?

Post by TheDDC » Wed Mar 28, 2018 12:48 pm

Nate79 wrote:
Wed Mar 28, 2018 10:22 am
Yes, save now for the future. Saddling kids with college loans is a crisis in this country and I will not do that to my child. As long as your retirement is being fully funded saving for your kids education is one of the best things you can do to them.
How does anyone know their retirement is "fully funded"? Can you predict health circumstances or retirement age at this juncture? 18 month old son, so assuming the OP is 20s or 30s. That's way too young an age to predict when a comfortable retirement can happen.

I will play devil's advocate as I always do on 529s: A 529 is a poor way of saving since it can only be used for one thing and penalized heavily if plans change. Like say, your kid pursues military or gets into an organization willing to finance 100% of educational expenses, of which there are plenty. Mostly of them govt/edu.

Who knows what education looks like in 18 years? I believe the college tuition bubble will burst at some point.

-TheDDC

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Re: Should we save for our son's college?

Post by Nate79 » Wed Mar 28, 2018 1:12 pm

TheDDC wrote:
Wed Mar 28, 2018 12:48 pm
Nate79 wrote:
Wed Mar 28, 2018 10:22 am
Yes, save now for the future. Saddling kids with college loans is a crisis in this country and I will not do that to my child. As long as your retirement is being fully funded saving for your kids education is one of the best things you can do to them.
How does anyone know their retirement is "fully funded"? Can you predict health circumstances or retirement age at this juncture? 18 month old son, so assuming the OP is 20s or 30s. That's way too young an age to predict when a comfortable retirement can happen.

I will play devil's advocate as I always do on 529s: A 529 is a poor way of saving since it can only be used for one thing and penalized heavily if plans change. Like say, your kid pursues military or gets into an organization willing to finance 100% of educational expenses, of which there are plenty. Mostly of them govt/edu.

Who knows what education looks like in 18 years? I believe the college tuition bubble will burst at some point.

-TheDDC
I think "penalized heavily" is a gross exaggeration. There is a 10% penalty and ordinary income rate on the earnings. Compared to a taxable account the tax different is maybe 22% vs 15% (22% tax rate vs 15% long term capital gains) not including the yearly tax drag on dividends plus the 10% penalty.

Certainly not ideal but I don't call that something that is going to matter that much vs getting tax free gains for education.

I do not believe in over funding 529s though but in my family the military route will be highly unlikely and the chance of actual financial aid (not loans, which are not aid but bad debt) are low due to income. In addition in my state we get a state tax deduction which is an upfront 9%. But certainly there are things that can be done to reduce the cost of education which is why I don't want to overfund. Whatever is remaining I will cash flow.

Everyone needs to look at their situation and determine if 529 makes sense.

For fully funded retirement there are a number of calculators that you can use with conservative assumptions and savings rates to see if you are on target. The future is unknown which is why I save as much as possible but I know that if needed I could tap the 529 as a last resort.

I believe there will always be some costs that can be paid by 529. Even if college tuition becomes free in this country there will still be room and board.

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Re: Should we save for our son's college?

Post by Darth Xanadu » Wed Mar 28, 2018 1:21 pm

Nate79 wrote:
Wed Mar 28, 2018 1:12 pm

I believe there will always be some costs that can be paid by 529. Even if college tuition becomes free in this country there will still be room and board.
I agree with this. I have gone back and forth on how much to fund 529. I settled on "some" and now exploring other options such as I-Bonds to augment available money but with added flexibility.

Also, I could see myself taking some community college courses in retirement, for several reasons. I doubt I'll pay the 10% penalty on much, if anything, when it's all said and done.
My friends said stick to your guns, but instead I just got stuck.

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Re: Should we save for our son's college?

Post by Nate79 » Wed Mar 28, 2018 1:26 pm

Darth Xanadu wrote:
Wed Mar 28, 2018 1:21 pm
Nate79 wrote:
Wed Mar 28, 2018 1:12 pm

I believe there will always be some costs that can be paid by 529. Even if college tuition becomes free in this country there will still be room and board.
I agree with this. I have gone back and forth on how much to fund 529. I settled on "some" and now exploring other options such as I-Bonds to augment available money but with added flexibility.

Also, I could see myself taking some community college courses in retirement, for several reasons. I doubt I'll pay the 10% penalty on much, if anything, when it's all said and done.
ibonds are a great option I think with the flexibility to use for your portfolio/emergency fund/savings while being tax free gains if used for college. I like the idea of some in 529 and some in ibonds.

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Re: Should we save for our son's college?

Post by TheDDC » Wed Mar 28, 2018 1:36 pm

Darth Xanadu wrote:
Wed Mar 28, 2018 1:21 pm
Nate79 wrote:
Wed Mar 28, 2018 1:12 pm

I believe there will always be some costs that can be paid by 529. Even if college tuition becomes free in this country there will still be room and board.
I agree with this. I have gone back and forth on how much to fund 529. I settled on "some" and now exploring other options such as I-Bonds to augment available money but with added flexibility.

Also, I could see myself taking some community college courses in retirement, for several reasons. I doubt I'll pay the 10% penalty on much, if anything, when it's all said and done.
In this market environment (okay, really in any market environment but especially this one), I would not be so quick at this juncture to be locked into taking a 10% haircut on gains after a 18+ year outlook. To each his own I guess...

-TheDDC

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Re: Should we save for our son's college?

Post by Irisheyes » Wed Mar 28, 2018 1:37 pm

Do it.

I also am foreign. I was lucky enough to attend college in my home country where the fees were exactly $1000 per year. This was for the country's top university.

Now that I live here and my child is looking at $50k fees per year for college, I have already saved 4 years of college expenses for her (our income is somewhat less than yours).

It doesn't seem fair that our generation got relatively free rides while we burden our children with huge expenses.

I will say that it helps that my child is a really hard worker in school and doesn't take anything for granted.

I live in a state (CA) where the tax benefits for a 529 are limited. I use a combo of a Coverdell account (25% of the overall total) and I and EE bonds instead of a 529. This mayn't be the best route for everyone, but I like the flexibility it affords us.

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Re: Should we save for our son's college?

Post by Darth Xanadu » Wed Mar 28, 2018 1:44 pm

TheDDC wrote:
Wed Mar 28, 2018 1:36 pm
Darth Xanadu wrote:
Wed Mar 28, 2018 1:21 pm
Nate79 wrote:
Wed Mar 28, 2018 1:12 pm

I believe there will always be some costs that can be paid by 529. Even if college tuition becomes free in this country there will still be room and board.
I agree with this. I have gone back and forth on how much to fund 529. I settled on "some" and now exploring other options such as I-Bonds to augment available money but with added flexibility.

Also, I could see myself taking some community college courses in retirement, for several reasons. I doubt I'll pay the 10% penalty on much, if anything, when it's all said and done.
In this market environment (okay, really in any market environment but especially this one), I would not be so quick at this juncture to be locked into taking a 10% haircut on gains after a 18+ year outlook. To each his own I guess...

-TheDDC
I'm not sure I understand what you're saying. I'm not locked into a 10% haircut at all.
My friends said stick to your guns, but instead I just got stuck.

TheDDC
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Re: Should we save for our son's college?

Post by TheDDC » Wed Mar 28, 2018 5:43 pm

Darth Xanadu wrote:
Wed Mar 28, 2018 1:44 pm
TheDDC wrote:
Wed Mar 28, 2018 1:36 pm
Darth Xanadu wrote:
Wed Mar 28, 2018 1:21 pm
Nate79 wrote:
Wed Mar 28, 2018 1:12 pm

I believe there will always be some costs that can be paid by 529. Even if college tuition becomes free in this country there will still be room and board.
I agree with this. I have gone back and forth on how much to fund 529. I settled on "some" and now exploring other options such as I-Bonds to augment available money but with added flexibility.

Also, I could see myself taking some community college courses in retirement, for several reasons. I doubt I'll pay the 10% penalty on much, if anything, when it's all said and done.
In this market environment (okay, really in any market environment but especially this one), I would not be so quick at this juncture to be locked into taking a 10% haircut on gains after a 18+ year outlook. To each his own I guess...

-TheDDC
I'm not sure I understand what you're saying. I'm not locked into a 10% haircut at all.
Should you not want to spend the 529 funds in college due to plans or funding sources changing specifically you would then be subject to a 10% penalty for the withdrawal of your own money. The hotel should be to pay as little as possible.

-TheDDC

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Re: Should we save for our son's college?

Post by livesoft » Wed Mar 28, 2018 5:55 pm

Nate79 wrote:
Wed Mar 28, 2018 1:26 pm
ibonds are a great option I think with the flexibility to use for your portfolio/emergency fund/savings while being tax free gains if used for college. I like the idea of some in 529 and some in ibonds.
Can you please clarify if there are family income limits to have these i-bonds/saving bonds tax-free for college?

https://www.treasurydirect.gov/indiv/pl ... cation.htm

Whoops! Sorry, the OP will very likely exceed income limits.
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Re: Should we save for our son's college?

Post by timmy » Wed Mar 28, 2018 5:57 pm

tainted-meat wrote:
Wed Mar 28, 2018 8:56 am
Since you're asking, yes you should save for your child's college education if you are making that kind of money.

There are many ways to instill good principles without making son finance his own education.

Now if you were making 35K, then I would say do the best you can but it's probably not realistic that you can fund his education.
+1

986racer
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Re: Should we save for our son's college?

Post by 986racer » Wed Mar 28, 2018 6:54 pm

Short answer is yes.

Long answer. At 4% growth per year in cost of undergraduate education, you will be looking at anywhere between 60K to 150K per year (after tax). It would be unrealistic to expect an 18 year old to be able to fully pay that on his/her own.

So, you will have a few options in 18 years
  • Hope your income stays high enough that you can pay this out of pocket (and potentially multiple children should you have more).
  • Hope that your industry becomes irrelevant by then and you won’t have a large income or net worth so that you qualify for lots of financial aid. (The problem with this option is your retirement might not look so good)
  • Find cheaper alternatives (community college, foreign schools, etc)
  • Save
If you go the last route, then you need to figure out what is the right savings vehicle (529, IRA, taxable account, etc). Each vehicle has its advantages and disadvantages. My only advice is that if you decide to save is to do a lot and soon so that you can let compounding do the heavy lifting

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Re: Should we save for our son's college?

Post by blevine » Wed Mar 28, 2018 7:21 pm

In the US your kids are only entitled to free education through high school, then they/you fund the rest. Now some states have discounted public colleges, but not free. And they may or may not be the first choice.

Save in a 529 plan for at least the cost of a state univ.
Today that is 25-50k/yr for 4 years cost depending on the state and where you live vs attend. Privates much more potentially, but I would not save much more in the 529. There are many other ways to fund the difference and overfunding a 529 is not ideal. I feel though you at least should make sure they can get a public university education. Whether you should do more can wait until you see the future more clearly.

Darth Xanadu
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Re: Should we save for our son's college?

Post by Darth Xanadu » Wed Mar 28, 2018 7:43 pm

TheDDC wrote:
Wed Mar 28, 2018 5:43 pm
Darth Xanadu wrote:
Wed Mar 28, 2018 1:44 pm
TheDDC wrote:
Wed Mar 28, 2018 1:36 pm
Darth Xanadu wrote:
Wed Mar 28, 2018 1:21 pm
Nate79 wrote:
Wed Mar 28, 2018 1:12 pm

I believe there will always be some costs that can be paid by 529. Even if college tuition becomes free in this country there will still be room and board.
I agree with this. I have gone back and forth on how much to fund 529. I settled on "some" and now exploring other options such as I-Bonds to augment available money but with added flexibility.

Also, I could see myself taking some community college courses in retirement, for several reasons. I doubt I'll pay the 10% penalty on much, if anything, when it's all said and done.
In this market environment (okay, really in any market environment but especially this one), I would not be so quick at this juncture to be locked into taking a 10% haircut on gains after a 18+ year outlook. To each his own I guess...

-TheDDC
I'm not sure I understand what you're saying. I'm not locked into a 10% haircut at all.
Should you not want to spend the 529 funds in college due to plans or funding sources changing specifically you would then be subject to a 10% penalty for the withdrawal of your own money. The hotel should be to pay as little as possible.

-TheDDC
Yes, I understand. But I'm not locked into the 10%. That only kicks in if I don't spend it on qualified expenses.
My friends said stick to your guns, but instead I just got stuck.

honduranhurricane
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Re: Should we save for our son's college?

Post by honduranhurricane » Wed Mar 28, 2018 7:46 pm

Our son is three, we have been contributing at least 500/month since a few months prior to him being born (set the account up in wife's name, then swapped beneficiary). We hope to be able to fund his attendance to the school of his choosing + grad school. I did not get that, wife got 100% scholarship. Ideally our son will not be burdened with debt after graduating. if he elects another path, can always take the withdrawal penalty or switch the beneficiary.

Agree with prior poster comment, other ways to teach life lessons than paying for school on his own.

986racer
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Re: Should we save for our son's college?

Post by 986racer » Wed Mar 28, 2018 7:48 pm

Darth Xanadu wrote:
Wed Mar 28, 2018 7:43 pm
Yes, I understand. But I'm not locked into the 10%. That only kicks in if I don't spend it on qualified expenses.
It is 10% of the gains, not 10% of the total amount. Also, as you pointed out, it's only if it isn't spent on qualified expenses, and also if you don't have an equal amount used for scholarships...

With being able to rename beneficiaries, it is pretty hard *not* to use the money for the intended purpose. With that being said, if you do need to pull it out and can't take advantage of one of myriad exclusions, then yes, there is a 10% haircut.

Honestly, with the increasing cost of college, the 10% haircut is one of the last things I'd be worried about. Just make sure to fund your own retirement first...

10YearPlan
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Re: Should we save for our son's college?

Post by 10YearPlan » Wed Mar 28, 2018 7:54 pm

Short answer: yes, you should

Longer answer: with your income your kid(s) will never qualify for any type of aid. Assuming you want your kids to get a degree, and are grooming them to do so, it would be doing them a disservice to leave them up to their own devices to pay for it, when aid is not an option.

JBTX
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Re: Should we save for our son's college?

Post by JBTX » Wed Mar 28, 2018 8:03 pm

My parents paid for my college and we will pay for my kids, assuming it is state school or comparable tuition. Roughly 1/2 with 529, the other half ibonds and current cash flow.

I wouldnt fully fund with 529. There is always possibility that one or both kids doesn’t go to college.

remomnyc
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Re: Should we save for our son's college?

Post by remomnyc » Wed Mar 28, 2018 8:33 pm

At your income level, you should save in 529 accounts for your child's college education. As others have pointed out, your child will never qualify for financial aid. The question is how much you want to save. We have decided to save for 4 years of private. If they don't go to college or go to state schools, leftover funds will go to grad school, grandkids, or will be paid out to them when we feel they are responsible enough to handle the money.

Darth Xanadu
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Re: Should we save for our son's college?

Post by Darth Xanadu » Wed Mar 28, 2018 8:35 pm

JBTX wrote:
Wed Mar 28, 2018 8:03 pm
My parents paid for my college and we will pay for my kids, assuming it is state school or comparable tuition. Roughly 1/2 with 529, the other half ibonds and current cash flow.

I wouldnt fully fund with 529. There is always possibility that one or both kids doesn’t go to college.
This is a very good idea that I picked up on BH forums, and will be following the same approach. With college funding, as with other financial planning decisions like tax diversification, it makes sense to me to set myself up now for options down the road.
My friends said stick to your guns, but instead I just got stuck.

HIinvestor
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Re: Should we save for our son's college?

Post by HIinvestor » Wed Mar 28, 2018 8:45 pm

We saved for our kids’ college and our income was a small fraction of yours. We were glad we did because it allowed both our kids to consider many more Us than we would’ve been able to if we had no savings.

We saved enough so both kids could have 4 years at our in-state public, living in the dorm by buying our state’s zero coupon bond.

Unfortunately, neither of our kids wanted to attend our instate public U, so we encouraged S to apply to Us likely to give him significant merit aid. The private U he selected did give him > 1/2 tuition for 4 years, so that with our savings and some current income made it do-able.

D went to a community college (nearly free) for 3 semesters before transferring to brother’s U, where we were full-pay (ouch)! Somehow we were able to make the numbers work, but it was challenging.

Savings gives you and your family choices. I worked part-time all through undergrad and grad school, + summers and got lots of merit and FAid. It’s much more difficult for kids these days to make much to contribute towards their college costs, since the costs are SO high.

Good luck!

J295
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Re: Should we save for our son's college?

Post by J295 » Wed Mar 28, 2018 8:48 pm

Yes. Save for kids.

JBTX
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Re: Should we save for our son's college?

Post by JBTX » Thu Mar 29, 2018 8:24 am

Darth Xanadu wrote:
Wed Mar 28, 2018 8:35 pm
JBTX wrote:
Wed Mar 28, 2018 8:03 pm
My parents paid for my college and we will pay for my kids, assuming it is state school or comparable tuition. Roughly 1/2 with 529, the other half ibonds and current cash flow.

I wouldnt fully fund with 529. There is always possibility that one or both kids doesn’t go to college.
This is a very good idea that I picked up on BH forums, and will be following the same approach. With college funding, as with other financial planning decisions like tax diversification, it makes sense to me to set myself up now for options down the road.
Early on I stopped funding 529s because one of our kids is special needs, and he likely won’t go to a typical
College. At one point our other child was struggling academically and had other issues and it wasn’t clear either one would go to college but thankfully she is now back on the college track.

A kid can go to military, or maybe get full scholarship. In some of those cases you can avoid withdrawal penalties but still have to pay ordinary income tax rates.

guliver
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Re: Should we save for our son's college?

Post by guliver » Fri Apr 13, 2018 8:10 pm

Thanks everyone! I'll take your advise on this and open a 529. I'm still deliberating how to balance between 529 and taxable accounts (we're already maximizing our 401k & IRA contributions), but I could decide on that further along the road. Thank you all for your replies!

RickBoglehead
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Re: Should we save for our son's college?

Post by RickBoglehead » Sat Apr 14, 2018 12:31 pm

Checkout your state-specific 529, and also Utah's.

We have 529s with Utah. Great investment choices, relatively low costs. With both our kids done with grad school, these 529s will be used for future grandchildren. We still own the accounts and neither child knows of their existence.

And, if you as parents decide to take classes that qualify, you can split off some of the funds for your own benefit. I spent $6,000 last year on a program I wanted to take for self-growth, and the 529 paid all the costs.

golfCaddy
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Re: Should we save for our son's college?

Post by golfCaddy » Sat Apr 14, 2018 12:46 pm

The top private colleges in the US meet full need, where full need is defined by them. At even the most generous, private colleges $350k/year means the colleges will expect you to pay sticker price, which is about $50k/year for tuition and another $15k/year for room and board at the top privates. Then, colleges have been increasing tuition faster than inflation, so you might count on the $65k/year price tag growing by 5%/year nominal(assuming 2-3% inflation and 2-3% real price growth). There's no bank that's going to loan your kids in their own name $260k in today's dollars, closer to $700k when he goes to school. The only way they can take on that kind of debt is if you cosign the loans.

Carefreeap
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Re: Should we save for our son's college?

Post by Carefreeap » Sat Apr 14, 2018 1:18 pm

10YearPlan wrote:
Wed Mar 28, 2018 7:54 pm
Short answer: yes, you should

Longer answer: with your income your kid(s) will never qualify for any type of aid. Assuming you want your kids to get a degree, and are grooming them to do so, it would be doing them a disservice to leave them up to their own devices to pay for it, when aid is not an option.
:thumbsup

As someone who had to pay for her own education it still sticks in my craw that Mom and Dad had fun partying it up with their big earnings while I struggled to work and go to school. My grades suffered and I made some choices I wouldn't have had I not been under so much pressure. I was also limited in the schools I could go to (couldn't afford to go away) and certainly missed out on the net working that helps people in their career.

Saving for your child's college says a couple of things 1) You value school and 2) You plan for big expenses. Setting an example like that is really important for kids.

My parents, despite their high income, were terrible money managers. It caused all kinds of family problems including getting divorced after 37 years of marriage. My husband and I will probably have to pay for my father's nursing home care which in this part of the world will run about $120k/year. Yes, I am resentful and embarrassed (with my husband) to be in this position. I remind myself to be grateful that at least I can afford it.

Don't forget who picks out your nursing care facility.

Grt2bOutdoors
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Re: Should we save for our son's college?

Post by Grt2bOutdoors » Sat Apr 14, 2018 1:35 pm

guliver wrote:
Fri Apr 13, 2018 8:10 pm
Thanks everyone! I'll take your advise on this and open a 529. I'm still deliberating how to balance between 529 and taxable accounts (we're already maximizing our 401k & IRA contributions), but I could decide on that further along the road. Thank you all for your replies!
The biggest benefit of compounding gains is to fund the account in the early years, would figure on saving 2-3 years of costs in 529 plan, last year can be in taxable/scholarships.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Bastiat
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Re: Should we save for our son's college?

Post by Bastiat » Sat Apr 14, 2018 1:38 pm

DaftInvestor wrote:
Wed Mar 28, 2018 9:59 am
Regardless of what individuals believe - Here in the US - the government kind of assumes the parents, if they can afford to do so, will be helping out.
They do? According to whom? Who is "the government"?

OP: There is no expectation that you pay for your child's college education. From what I have seen, you can do much more harm than good in providing everything for your children. We save for our children's education, but they will certainly have skin in the game, and will be paying for it themselves if they want a degree that isn't expected to provide a good return on the investment.

GCD
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Re: Should we save for our son's college?

Post by GCD » Sat Apr 14, 2018 2:30 pm

A couple of thoughts...

OP, where are you from? Just curious. I was in Kyrgyzstan for work and it was interesting to see how "well" educated a certain segment of the population was. Education was free and the economy sucked so a lot of people were "professional" students. Many many people had multiple advanced degrees. I'm not sure what the quality of those degrees were. It seemed kind of hit or miss on their performance. So I can see how a foreign background would give you a different perspective on education.

Anyway, re should/shouldn't, you can see the wide range of responses as to what is normal in the US.

Add me to the should pay category. Max your 401K, IRA and 529. No reason you can't save for retirement and the kid's college at the same time. It's not an either/or thing. Max the tax advantaged stuff and let your lifestyle be dictated by what remains. Don't let your lifestyle dictate savings. We had less income than you but saved with the intent of paying for college and some professional school. If you can't get a free ride in grad school you probably shouldn't be going. Prof school (law and med) is different. That's my perception of US higher ed.

Many different opinions here, but IMO don't worry about oversaving in the 529. I'm an admitted education junkie though.

Carefreeap
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Re: Should we save for our son's college?

Post by Carefreeap » Sat Apr 14, 2018 2:45 pm

Bastiat wrote:
Sat Apr 14, 2018 1:38 pm
DaftInvestor wrote:
Wed Mar 28, 2018 9:59 am
Regardless of what individuals believe - Here in the US - the government kind of assumes the parents, if they can afford to do so, will be helping out.
They do? According to whom? Who is "the government"?

OP: There is no expectation that you pay for your child's college education. From what I have seen, you can do much more harm than good in providing everything for your children. We save for our children's education, but they will certainly have skin in the game, and will be paying for it themselves if they want a degree that isn't expected to provide a good return on the investment.
In many countries the government subsidizes education. Ours not as much. Scholarships are mostly income based because the thinking is that higher earners can afford to pay for their kid's education. Therefore the kid whose high earning parents refuse to pay for school are penalized by the system.

<bolded statement> That's pretty harsh. With that kind of attitude we wouldn't have any teachers, social workers or other noble, but low paying jobs.

I think it makes far more sense to set some boundaries previously mentioned such as the cost of a state school, B average, et cetera if you want your kid to understand the value of money.

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