Logistics of splitting tuition costs with child

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Doc7
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Logistics of splitting tuition costs with child

Post by Doc7 » Thu May 16, 2019 4:11 am

Hello,

I was very fortunate in two ways (more, but two relevant here). One is that my parents wanted very much to invest in my higher education which has paid lucratively in my career as I approach my 12 year anniversary of 4 year college graduation this month. The second - which is kind of a glass half full way of looking at it - is that my father suffered a great deal of career trials and tribulations in the post dot com boom era, having left a decades long career at Boeing as a particle physicist PhD to join an internet startup just several months before the dot coms started to fail and being handed a box one day upon arriving to work, which then happened at a second dot-com again a couple months later. This parlayed into jobs as a temp agency laborer, painting walls etc, waiting for job postings (which ended up again in a successful high level career as a project manager at another Fortune 500 company)...but the low income years played heavily into financial aid and costs of tuition in 2004 matriculation date (that's the "fortunate" part). Now I look at how the college I attended is over $70K per year and I am just astonished.

My parents committed to me at a very young age (as young as I can remember discussing money) that they wanted to pay for 75% of my undergrad college education. This is a tradition I would like to carry onto my (currently 2, ages 1 and 4) children.

I do not want to over invest in 529 plans on the chance we end up with 1 or more non-college attendees. While higher education is important to me, I understand there are many career paths and many levels of ability that play into what happens 14 years from now, as well as industrial realities of the cost/benefits of a 4 year degree.

We currently save 17% of gross to our retirement (looking to go to 18% this year) and $350/month per child to a 529 at Vanguard, in addition to emergency fund savings (saving $500/month until we get to 6 months expenses) and our mortgage payment, along with charitable giving and living expenses.

Looking at an in state school (VA Tech) at costs of 25K and extrapolating a 6.6% Increase per year, when my 4 year old goes there it will cost $61k/year. At current 529 plan savings for the 529 designated to his name of $19K, and using a glide path from 70/30 stocks/bonds now to 0/100 at age 15, I anticipate we would hit age 18 @ $118K in 529, and it would hit negative numbers in college year #3, and by graduation I would be $73K in the hole for my 75%. Meanwhile, I am praying he doesn't choose a private out-of-state college like I did!

(Numbers are similar for 1 year old, at current 529 balance and savings rate, except if school really increases by 6.6% every year from now until she turns 22 y/o, I would be $120K in the hole for her)

What is the logistical way of someone "paying for 75% of college costs"? At current savings rates and not covering it entirely from the 529 and my checking account, he would have a student loan or loans that I pledged to shoulder 75% of the costs of. Presumably he and I would be interested at making lump sum principal payments at various times in the life of this loan until it was gone (if he is anything like me... I wanted OUT of my student loan debt and paid it off within 3 years of graduation). I don't know how I would handle this from an accounting perspective?

I know an easy answer is to increase 529 savings rates, pay 75% each year as we go and the outstanding student loan debt is his alone to handle (this is how my parents did it), but for instance if he chose the college I went to it could easily cost 150k-200k per YEAR in 15 years and there is no way to account for that right now by simply increasing my 529 savings, so the scenario could play out no matter what I put my 529 savings to.

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RickBoglehead
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Re: Logistics of splitting tuition costs with child

Post by RickBoglehead » Thu May 16, 2019 4:55 am

Your children can choose any college. However, an inability to fund that college without great financial pain SHOULD be considered, no?

Agree to pay 75% for any school UP TO the cost of school X. If they choose a cheaper school, you save money. If they choose a more expensive school, THEY have more debt.
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SC Anteater
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Re: Logistics of splitting tuition costs with child

Post by SC Anteater » Thu May 16, 2019 6:42 am

RickBoglehead wrote:
Thu May 16, 2019 4:55 am
Your children can choose any college. However, an inability to fund that college without great financial pain SHOULD be considered, no?

Agree to pay 75% for any school UP TO the cost of school X. If they choose a cheaper school, you save money. If they choose a more expensive school, THEY have more debt.
Except it's really the parents who have the debt. Kids can borrow only a pittance in their own names, everything else is a parents plus loan, which legally you're on the hook for. You hope that your kid is responsible and refinances the debt into his own name once employed, but there's no guarantee.

NotWhoYouThink
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Re: Logistics of splitting tuition costs with child

Post by NotWhoYouThink » Thu May 16, 2019 6:54 am

SC Anteater wrote:
Thu May 16, 2019 6:42 am
RickBoglehead wrote:
Thu May 16, 2019 4:55 am
Your children can choose any college. However, an inability to fund that college without great financial pain SHOULD be considered, no?

Agree to pay 75% for any school UP TO the cost of school X. If they choose a cheaper school, you save money. If they choose a more expensive school, THEY have more debt.
Except it's really the parents who have the debt. Kids can borrow only a pittance in their own names, everything else is a parents plus loan, which legally you're on the hook for. You hope that your kid is responsible and refinances the debt into his own name once employed, but there's no guarantee.
Almost agreed, but then remembered that there is nothing at all responsible about letting your kid get saddled with a lot of student debt for an undergraduate degree (or worse, undergraduate coursework that falls short of achieving a degree.) A good parent won't take on a load of debt and then try to guilt their kids into paying it off.

The reality is that college financing is expensive. It's likely to change quite a bit before OP's kids reach college age, but a University education will still be expensive, and putting together the pieces of it will be complicated. Today the cost depends on the college, the student's demonstrated aptitude and achievement, the parents' financial status, and other factors. All of those are impossible to predict 14-16 years in advance.

So you learn to live with uncertainty for now. Save what feels like too much, both for retirement and for college, and hope that it is almost enough when the time comes. Adjust as the future becomes clearer.

OnTrack2020
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Re: Logistics of splitting tuition costs with child

Post by OnTrack2020 » Thu May 16, 2019 7:45 am

All money saved for college went into taxable accounts--no 529s. If we looked at what we would owe at the beginning of our first child entering a four-year private college, it would have been between $150k to $160k just for our first child. He ended up wanting to attend, we gave our blessing, and then our reaction was how are we going to pay this--I know, kind of backwards. At the time--three years ago--we had around $25-$26k available to spend for our first child, and around $24k for our second child and then less for each subsequent child. We never had a plan for splitting college bills with our kids, although I will say that I find it somewhat ridiculous that in our culture, it's changed to where the expectation is that the parent must pay for the child's college. We've just kind of gone with the flow using a combination of ways to pay--scholarships (this basically cut the private college bill in half), education tax credit, tax refunds, child working in high school, bonus, cash saved every month. There are several ways to work out plans now, as well as when the child is older. Also, what about personal expenses associated with going to college--will you include those?

We have:
--One at private university (will have small amount of debt at the end--maybe around $6k or so)
--One at community college in another town and has lived on-campus (will have no debt)
--One who will either work or attend community college after high school
--One who wants to attend college when they graduate high school

So far, everything has worked out. Any additional monies left over, or child deciding to forego college, will be used toward future housing--that's why I didn't want to do any 529s.

At this stage, you will have no idea if your child has the aptitude or willingness to attend college until they reach, at a bare minimum, the end of junior high.

cshell2
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Re: Logistics of splitting tuition costs with child

Post by cshell2 » Thu May 16, 2019 9:00 am

I think your 6.6% annual increase assumption is awful steep. The national average is about 4% and around here tuition rates have been basically frozen for years. I think eventually costs are going to reach a point where people start looking more closely at other options as it just won't be worth it.

My oldest will be applying to colleges this fall, and the way we're splitting the cost is that I'm going to require he handle all the books and "extra expenses" listed on the cost of attendance. I figure he should be able to do this with just working summers and a PT/work study job at the school. I will cover all the tuition and room and board equivalent to the cost of an in-state school. If he can get private or out of state down with scholarships or aid great, but anything above and beyond that will be his responsibility.

But, I've come to the conclusion (and I think DS has too) that choice of school is one of the most important things when it comes to figuring out how to pay for it. He currently has 20 on "the list" and the net price of these schools after factoring in grants and scholarships range from 3K/year to 45K/year. He could graduate with lots of money left over or graduate with lots of debt and the difference in the value of the degrees might not be much, if anything.

sport
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Re: Logistics of splitting tuition costs with child

Post by sport » Thu May 16, 2019 9:28 am

Here is what we did: We did not have high earnings. We were a middle class family with two children. When they were teens, they earned some money delivering papers and summer jobs. We told them they could spend 10% of what they earned, and the rest was to be saved to pay for college. At one point, their college savings were in CDs yielding 16%. Of course, they were not able to save enough to pay for a 4 years of college. So, when it was time to choose a college, we told them they could go to one of our state schools. If they wanted to go elsewhere, they had to get enough scholarship money so the cost would be equivalent to our state schools. One child chose a very good state school, and the other got a nice scholarship out of state. We had them spend 1/4 of their college savings each year, and we made up the difference. They both graduated, with honors, in 4 years, with no student loans.

diasurfer
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Re: Logistics of splitting tuition costs with child

Post by diasurfer » Thu May 16, 2019 9:37 am

I agree that 6.6% seems very high. I read not too long ago that college tuition escalated so fast for a few years that it reached a bubble. Like the previous poster, tuition here (state of Florida) hasn't gone up in several years. I looked at the Florida prepaid program as an option. The number they use to estimate cost of tuition in the future in their marketing materials (presumably chosen to scare consumers into prepaying) is only 4.5%.

From delving deep into the plan documents awhile back, I surmised that the state actuaries were actually using an even smaller number. By state law, the program is not supposed to cost the taxpayers anything, and the state is required to invest the amounts paid into the Prepaid fund in very conservative investments (90% bonds). So for both of these to be true, the state must think tuition will increase no more than the return of a bond fund.

I chose to invest in a 529 instead (greater risk, and potential for greater return ... unless you turn out to be right about the 6.6%, in which case the Prepaid would have made sense.

Of course, the Florida actuaries could be wrong. No one knows the future, etc.

Just curious, what numbers are you using for the return in your 529?

rj342
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Re: Logistics of splitting tuition costs with child

Post by rj342 » Thu May 16, 2019 10:26 am

1) I think you are assuming too much of an open ended obligation.
You should be thinking about your best in-state public university as your baseline option.
Kid needs to have some skin in the game so deduct that.
If they can get significant scholarships then you can help them go private -- but a lesser known private school is generally a terrible idea with a good chunk of the top tier expense (if they're having to borrow for it) and few of the actual benefits. Made worse of course depending on choice of major, on which you MUST offer guidance. Just "Follow your passion" is nonsense -- for this expense there HAS to be a practical component to the choice. Of course choosing a major mainly because it can make a lot of money is nonsense too. Motivation (of which liking the field is big factor) and having the knack for it are huge.

2) Something has got to give in the current cost-plus student loan runaway inflation paradigm. "College" for a lot of people may start to look really different in another decade or so, particularly in software/IT. So better cost-benefit options may appear.

delamer
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Re: Logistics of splitting tuition costs with child

Post by delamer » Thu May 16, 2019 11:06 am

You are making this really complicated.

And are you actually willing/able to pay 75% of an Ivy League or other high-cost school? It doesn’t sound like it.

Try this:

“Kid, we will pay up to a total of $X for your 4 year undergrad education. If you need more than $X, you’ll have to get scholarships/loans/work study. And if $X is more than 75% of the cost of attendance, then our contribution will be capped at the 75%.”

ohai
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Re: Logistics of splitting tuition costs with child

Post by ohai » Thu May 16, 2019 11:24 am

OP, just save what you can for college tuition. If college is $200k a year in the future (I hope it isn't), your 75% will obviously mean a different thing than if college is $50k a year. You and kids can then make the rational choice given the future situation.

cshell2
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Re: Logistics of splitting tuition costs with child

Post by cshell2 » Thu May 16, 2019 12:08 pm

ohai wrote:
Thu May 16, 2019 11:24 am
OP, just save what you can for college tuition. If college is $200k a year in the future (I hope it isn't), your 75% will obviously mean a different thing than if college is $50k a year. You and kids can then make the rational choice given the future situation.
I agree with this.

OP, you have a long ways to go and so much can (and probably will) change. I wouldn't bother trying to hammer out the details of college funding for kids not even in kindergarten yet. My situation and outlook today with a 17 year old on the verge of applying is nothing like it was back in 2002 when I started his 529. You do want to keep saving as much as you can without over-saving in 529's, but even if you do, it's really not the end of the world.

KlangFool
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Re: Logistics of splitting tuition costs with child

Post by KlangFool » Thu May 16, 2019 12:20 pm

Doc7 wrote:
Thu May 16, 2019 4:11 am

We currently save 17% of gross to our retirement (looking to go to 18% this year) and $350/month per child to a 529 at Vanguard, in addition to emergency fund savings (saving $500/month until we get to 6 months expenses) and our mortgage payment, along with charitable giving and living expenses.
Doc7,

1) At your saving rate, only if you are fully-employed when your kids go to college, you can afford to pay for your kids' college education. So, why do you need to worry about 529/college saving and so on?

2) If you save a lot more, your retirement will be fully funded when your kids go to college and your annual saving can pay for the college education.

3) Mathematically, there is no way for you to pay 100K to 120K per year of college at your current saving rate. So, why do you need to worry about that? You cannot afford to pay.

Do the calculation. Let the number tell you exactly what you can afford. If you do the calculation, the answer will be obvious to you.

KlangFool

KlangFool
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Re: Logistics of splitting tuition costs with child

Post by KlangFool » Thu May 16, 2019 12:27 pm

OP,

The answer is simple and obvious. Do not save for college education. Save for retirement instead. If and when the kids go to college, depending on the retirement account funding, the parent pays whatever amount that the parent can afford. The parent should burden the kids with their retirement. The parent cannot borrow for their retirement. The kids can borrow for their college education.

KlangFool

GAAP
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Re: Logistics of splitting tuition costs with child

Post by GAAP » Thu May 16, 2019 12:29 pm

My parent's method was to say that they would pay for tuition and books with an upper limit based upon attendance at a local state college. We could go elsewhere, but would be responsible for the difference.

Doing something like this would give you a much better number to budget for -- and the choice of school for a benchmark could be changed if necessary as conditions change.
“Adapt what is useful, reject what is useless, and add what is specifically your own.” ― Bruce Lee

TheDDC
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Re: Logistics of splitting tuition costs with child

Post by TheDDC » Thu May 16, 2019 12:34 pm

This is too complicated as evidenced by the replies. The fact is college tuition is a bubble waiting to burst. Best way to finance a bubble is with OPM.

Have your kid take a job that pays 75-100% of college tuition. In my state/area these jobs are plentiful.

Best of luck.

-TheDDC

ohai
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Re: Logistics of splitting tuition costs with child

Post by ohai » Thu May 16, 2019 12:43 pm

KlangFool wrote:
Thu May 16, 2019 12:27 pm
OP,

The answer is simple and obvious. Do not save for college education. Save for retirement instead. If and when the kids go to college, depending on the retirement account funding, the parent pays whatever amount that the parent can afford. The parent should burden the kids with their retirement. The parent cannot borrow for their retirement. The kids can borrow for their college education.

KlangFool
You should still plan to pay some though, due to 529 tax benefits.

KlangFool
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Re: Logistics of splitting tuition costs with child

Post by KlangFool » Thu May 16, 2019 12:55 pm

ohai wrote:
Thu May 16, 2019 12:43 pm
KlangFool wrote:
Thu May 16, 2019 12:27 pm
OP,

The answer is simple and obvious. Do not save for college education. Save for retirement instead. If and when the kids go to college, depending on the retirement account funding, the parent pays whatever amount that the parent can afford. The parent should burden the kids with their retirement. The parent cannot borrow for their retirement. The kids can borrow for their college education.

KlangFool
You should still plan to pay some though, due to 529 tax benefits.
ohai,

Why pay Federal income tax? 529 is an after-tax contribution.

KlangFool

psteinx
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Re: Logistics of splitting tuition costs with child

Post by psteinx » Thu May 16, 2019 12:57 pm

Given a few facts from the OP:

1) OP's father (childrens' grandfather) is a PhD.
2) OP went to a private school now costing ~$70K (most of these are highly ranked with fairly tough admissions requirements).
3) OP's screen name is Doc7 (suggesting he's an MD, PhD, or other highly educated, likely high intelligence profession).

Further, given fairly common associative mating (i.e. OP's spouse is likely intelligent and well educated), plus the high savings rate, and maybe the likely overall typical education levels and the like seen on BH, and the likelihood that nature + nurture transmits much of this educational/intelligence drive to OP's kids,

THEN

It's pretty likely that OP's kids *will* go to college, and furthermore, fairly likely they'll be qualified for a good college. Possibly in-state, possibly private OOS. Don't forget UVA, of course.

Bottom line, if OP is already maxing out other tax-deferred savings options, it likely makes a lot of sense for OP to also go for a 529 fairly heavily. With kids at ages 1 and 4, it's pretty hard to anticipate the details of what their future education might entail. OP could move to a different state with less attractive public colleges, kids could have interests not well supported by public options, etc. But OP can also fine tune 529 savings rates, to some degree, later, as kids are say 12 or 16 years old and their educational path is at least a little more clear.

As for the, "make the kids pay 25%" thing : It's not unreasonable at a typical in-state public, assuming costs don't balloon too much in the next ~15 years. But it may be unreasonable at a ~$70K/year (2019 dollars) private that may in fact be very good for your kid. For instance, if your kid is a STEM superstar, and wants to go to MIT or CalTech and can get in there, do you really want to limit them to Va. Tech or even UVA?

financiallycurious
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Re: Logistics of splitting tuition costs with child

Post by financiallycurious » Thu May 16, 2019 12:58 pm

It sounds like you're already saving as much as you can between 18% to retirement, emergency fund savings, and $350/month per child into a 529 plan? If that's true, then I think you can take comfort in the fact that you seem to be saving at least 20% of your income annually and you've made a reasonable and prudent decision to prioritize retirement savings over 529 savings. My approach is (1) save 20-30% per year of net W2 income using (2) a thoughtful prioritization of different spaces (for me since I already own a home and have an emergency fund and don't have an HSA available, my savings priority is (a) retirement, (b) 529, then (c) any leftover to a taxable account, but I haven't had any leftover since having kids, lol).

I saved $14,000 per year annually in my 7-year old's 529 plan with after-tax, after-410k contribution income, starting at birth, and thanks to lucky timing, this 529 plan now has enough in it to pay for the full cost of our flagship state university, including the cost of living expenses in a dorm, so I've rebalanced my 7-year-old's 529 plan into a conservative allocation that will hopefully still keep up with inflation, and I'm done with contributions, but I've started all over with a new baby (it never ends). Baby's account is 100% equities and I hope to continue to contribute $15,000 per year, but only after maxing out my 401k. If my income drops, I'd cut back on 529 contributions before I cut back on retirement contributions.

Grt2bOutdoors
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Re: Logistics of splitting tuition costs with child

Post by Grt2bOutdoors » Thu May 16, 2019 1:04 pm

OP - target $130K in gross savings come age 18. VA Tech I project will cost about $44K a year, so four years is $176K or 3/4's. To get there, up your contribution rate over time from $350 a month to $400 a month. Where you save the extra $50 a month is up to you, put it in taxable and know you'll be good for it come college time.

As for private, well that is a decision that needs to be made with child. You have 12 years to start teaching the child about the value of money and the value of education. Good Luck!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

cshell2
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Re: Logistics of splitting tuition costs with child

Post by cshell2 » Thu May 16, 2019 1:08 pm

KlangFool wrote:
Thu May 16, 2019 12:55 pm
ohai wrote:
Thu May 16, 2019 12:43 pm
KlangFool wrote:
Thu May 16, 2019 12:27 pm
OP,

The answer is simple and obvious. Do not save for college education. Save for retirement instead. If and when the kids go to college, depending on the retirement account funding, the parent pays whatever amount that the parent can afford. The parent should burden the kids with their retirement. The parent cannot borrow for their retirement. The kids can borrow for their college education.

KlangFool
You should still plan to pay some though, due to 529 tax benefits.
ohai,

Why pay Federal income tax? 529 is an after-tax contribution.

KlangFool

Some states have tax breaks. I get a 50% credit on the first $1000. My parents can deduct up to 4K/beneficiary in their state.

ddurrett896
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Re: Logistics of splitting tuition costs with child

Post by ddurrett896 » Thu May 16, 2019 1:10 pm

Doc7 wrote:
Thu May 16, 2019 4:11 am
What is the logistical way of someone "paying for 75% of college costs"?
Pay 100% of the college, then have your child pay you back the 25%.

KlangFool
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Re: Logistics of splitting tuition costs with child

Post by KlangFool » Thu May 16, 2019 1:28 pm

cshell2 wrote:
Thu May 16, 2019 1:08 pm
KlangFool wrote:
Thu May 16, 2019 12:55 pm
ohai wrote:
Thu May 16, 2019 12:43 pm
KlangFool wrote:
Thu May 16, 2019 12:27 pm
OP,

The answer is simple and obvious. Do not save for college education. Save for retirement instead. If and when the kids go to college, depending on the retirement account funding, the parent pays whatever amount that the parent can afford. The parent should burden the kids with their retirement. The parent cannot borrow for their retirement. The kids can borrow for their college education.

KlangFool
You should still plan to pay some though, due to 529 tax benefits.
ohai,

Why pay Federal income tax? 529 is an after-tax contribution.

KlangFool

Some states have tax breaks. I get a 50% credit on the first $1000. My parents can deduct up to 4K/beneficiary in their state.
cshell2,

That 529 tax break is for state income tax only. You still pay Federal Income tax on that 529 contributions. So, why would you choose to pay Federal Income Tax?

KlangFool

cshell2
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Re: Logistics of splitting tuition costs with child

Post by cshell2 » Thu May 16, 2019 1:32 pm

[/quote]

cshell2,

That 529 tax break is for state income tax only. You still pay Federal Income tax on that 529 contributions. So, why would you choose to pay Federal Income Tax?

KlangFool
[/quote]


If you've already maxed your pre-tax options what does it matter? It's either 529 with state break or a taxable account.

KlangFool
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Re: Logistics of splitting tuition costs with child

Post by KlangFool » Thu May 16, 2019 1:43 pm

cshell2 wrote:
Thu May 16, 2019 1:32 pm
cshell2,

That 529 tax break is for state income tax only. You still pay Federal Income tax on that 529 contributions. So, why would you choose to pay Federal Income Tax?

KlangFool
[/quote]


If you've already maxed your pre-tax options what does it matter? It's either 529 with state break or a taxable account.
[/quote]

Why do you think that OP had maxed his pre-tax option?

KlangFool

basspond
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Re: Logistics of splitting tuition costs with child

Post by basspond » Thu May 16, 2019 1:50 pm

What was the tradition for your dad’s college expenses? What about your grandfather, great-grandfather, etc..? The motto in our family is to make our children’s lives better then the parents. The tradition you should be focused on is teaching your children the value of hard work, financial basics, honesty, faith based lifestyle, and respecting others.

Don’t you want to do better then your dad?

cshell2
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Re: Logistics of splitting tuition costs with child

Post by cshell2 » Thu May 16, 2019 1:51 pm

KlangFool wrote:
Thu May 16, 2019 1:43 pm
cshell2 wrote:
Thu May 16, 2019 1:32 pm
cshell2,

That 529 tax break is for state income tax only. You still pay Federal Income tax on that 529 contributions. So, why would you choose to pay Federal Income Tax?

KlangFool

If you've already maxed your pre-tax options what does it matter? It's either 529 with state break or a taxable account.
[/quote]

Why do you think that OP had maxed his pre-tax option?

KlangFool
[/quote]

You're right. I was assuming, by the "Doc" and "lucrative career" part that 18% is maxing out his 401K, but that may not be so.

KlangFool
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Re: Logistics of splitting tuition costs with child

Post by KlangFool » Thu May 16, 2019 2:09 pm

cshell2 wrote:
Thu May 16, 2019 1:51 pm
KlangFool wrote:
Thu May 16, 2019 1:43 pm
cshell2 wrote:
Thu May 16, 2019 1:32 pm
cshell2,

That 529 tax break is for state income tax only. You still pay Federal Income tax on that 529 contributions. So, why would you choose to pay Federal Income Tax?

KlangFool

If you've already maxed your pre-tax options what does it matter? It's either 529 with state break or a taxable account.
Why do you think that OP had maxed his pre-tax option?

KlangFool
[/quote]

You're right. I was assuming, by the "Doc" and "lucrative career" part that 18% is maxing out his 401K, but that may not be so.
[/quote]

Please note that someone that maxed up all his/her tax-advantaged accounts would be saving above 50K per year. That kind of person could pay for a college education from the annual savings. They do not need to save for college education.

I know this because I am paying my kids' college education from my annual savings.

KlangFool

Regattamom
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Re: Logistics of splitting tuition costs with child

Post by Regattamom » Thu May 16, 2019 2:12 pm

My advice is to forget about college costs for now. Instead:

1. Max retirement savings
2. Live below your means
3. Invest extra money
4. Teach children the value of a dollar
5. Teach children how to budget
6. Don't make promises regarding fancy colleges or how much you will spend
7. Stay employed

By doing this, when they are older and closer to graduating high school, you should be in a good position to help fund your child's education. And they will better understand the value of their education.
Last edited by Regattamom on Thu May 16, 2019 2:21 pm, edited 1 time in total.

cshell2
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Re: Logistics of splitting tuition costs with child

Post by cshell2 » Thu May 16, 2019 2:21 pm

KlangFool wrote:
Thu May 16, 2019 2:09 pm
cshell2 wrote:
Thu May 16, 2019 1:51 pm
KlangFool wrote:
Thu May 16, 2019 1:43 pm
cshell2 wrote:
Thu May 16, 2019 1:32 pm
cshell2,

That 529 tax break is for state income tax only. You still pay Federal Income tax on that 529 contributions. So, why would you choose to pay Federal Income Tax?

KlangFool

If you've already maxed your pre-tax options what does it matter? It's either 529 with state break or a taxable account.
Why do you think that OP had maxed his pre-tax option?

KlangFool
You're right. I was assuming, by the "Doc" and "lucrative career" part that 18% is maxing out his 401K, but that may not be so.
[/quote]

Please note that someone that maxed up all his/her tax-advantaged accounts would be saving above 50K per year. That kind of person could pay for a college education from the annual savings. They do not need to save for college education.

I know this because I am paying my kids' college education from my annual savings.

KlangFool
[/quote]


Well, now aren't you assuming you know what tax-advantaged accounts are available to him? Wouldn't that depend on his employer and if his spouse also works and what her employer offers? I don't know what I can do outside of 19K to 401K and 6K to IRA. I'm divorced now, but when I was married, my ex worked at a company that did not offer a 401K, so he was IRA only.

KlangFool
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Re: Logistics of splitting tuition costs with child

Post by KlangFool » Thu May 16, 2019 2:28 pm

cshell2 wrote:
Thu May 16, 2019 2:21 pm
KlangFool wrote:
Thu May 16, 2019 2:09 pm
cshell2 wrote:
Thu May 16, 2019 1:51 pm
KlangFool wrote:
Thu May 16, 2019 1:43 pm
cshell2 wrote:
Thu May 16, 2019 1:32 pm
cshell2,

That 529 tax break is for state income tax only. You still pay Federal Income tax on that 529 contributions. So, why would you choose to pay Federal Income Tax?

KlangFool

If you've already maxed your pre-tax options what does it matter? It's either 529 with state break or a taxable account.
Why do you think that OP had maxed his pre-tax option?

KlangFool
You're right. I was assuming, by the "Doc" and "lucrative career" part that 18% is maxing out his 401K, but that may not be so.
Please note that someone that maxed up all his/her tax-advantaged accounts would be saving above 50K per year. That kind of person could pay for a college education from the annual savings. They do not need to save for college education.

I know this because I am paying my kids' college education from my annual savings.

KlangFool
[/quote]


Well, now aren't you assuming you know what tax-advantaged accounts are available to him? Wouldn't that depend on his employer and if his spouse also works and what her employer offers? I don't know what I can do outside of 19K to 401K and 6K to IRA. I'm divorced now, but when I was married, my ex worked at a company that did not offer a 401K, so he was IRA only.
[/quote]

cshell2,

Normally, in those cases, either

A) The person does not earn enough to worry about saving for a college education.

B) The person is a 1099 contractor. Hence, the person could open his own Solo/Individual 401K.

Yes, there could be an exception. But, they're very rare.

KlangFool

Quickfoot
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Re: Logistics of splitting tuition costs with child

Post by Quickfoot » Thu May 16, 2019 2:32 pm

It's unlikely college costs will continue to increase 6% per year, it isn't tenable.

We thought about paying up to instate tuition for our kid's college and backed away from that. We will provide them with free room and board while they go to college, that saves them 50% compared to staying in dorms at a state college which works out to about 50K of cost savings for them. We have four outstanding in state colleges within driving distance. If they want to go out of state that's fine but we aren't paying for it.

It is a parent's responsibility to encourage college but it isn't our responsibility to pay for it. When things are given to people they tend to not value them very much. While as parents we don't like to see our children saddled with debt insulating them from it is likely to result in them making poor school choices, poor degree program choices and not performing as well in school (why should they, it's being provided for them).

Even if you plan on paying for 75% I'd put some stipulations on it and personally wouldn't pay anything until they graduate or at least until they pass the classes. I'm a firm believer grants should work in this way as well, if you drop out without graduating you should have to pay back any financial aid you received from the school or the government.

Quickfoot
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Re: Logistics of splitting tuition costs with child

Post by Quickfoot » Thu May 16, 2019 2:40 pm

Also look into state credits and dual program classes, in our state it is possible for a student to graduate high school with a regionally accredited associate's degree at zero cost (state pays tuition). The associate's degree also has guaranteed transfer into and results in guaranteed admittance into any of our four state colleges so they don't have to worry about SAT scores.

These type of programs are common, are EXTREMELY under utilized (the state offers it to EVERY student regardless of parental income and less than 8% take advantage of it) and cut the cost of a bachelor's degree by more than half.

By taking advantage of this program and staying at home the cost of a state bachelor's degree for our kids drops from 100K (between tuition and boarding) to 16K, which they can pay for :).
Last edited by Quickfoot on Thu May 16, 2019 2:44 pm, edited 1 time in total.

HomeStretch
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Re: Logistics of splitting tuition costs with child

Post by HomeStretch » Thu May 16, 2019 2:42 pm

I think it’s great you want to pay for the majority of your children’s college costs if they attend. They are ages 1 and 4. My advice is for now save as much as you can and live below your means. Start talking about colleges and financial assistance when age appropriate. By age 13, they should have a clear idea that they are expected to work and apply for scholarships to help pay for a college that is affordable to you and them. I’d leave the exact cost-sharing % until age 16-17 just before they start looking at schools and applying. You’ll have a better handle on school costs and your finances at that point.

Skin-in-the-game is a great concept but no college grad should be saddled with 6-figure debt upon graduation if it can be avoided. It is literally overwhelming for some of the recent grads I have talked to.

Quickfoot
Posts: 1153
Joined: Fri Jan 11, 2013 1:03 pm

Re: Logistics of splitting tuition costs with child

Post by Quickfoot » Thu May 16, 2019 2:46 pm

Ultimately if they have 100K debt from a bachelor degree they went to the wrong school. A lot of the problem these days is students see college as an experience rather than education. They will go spend 120K getting a bachelor degree when they could spend 40K on a comparable program from a different school.

Teaching children to make wise choices is the ultimate parental responsibility. Parents should not jeopardize their financial stability or retirements to provide for colleges that are over priced. There is a huge difference between want and need and our society has lost touch with that distinction.

cshell2
Posts: 57
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Re: Logistics of splitting tuition costs with child

Post by cshell2 » Thu May 16, 2019 2:50 pm

cshell2,

Normally, in those cases, either

A) The person does not earn enough to worry about saving for a college education.

B) The person is a 1099 contractor. Hence, the person could open his own Solo/Individual 401K.

Yes, there could be an exception. But, they're very rare.

KlangFool

He made 70K as a CNC programmer, I make 40K (50K if we get good bonuses and I work a ton of OT).

I still think it's important for me to save for my kid's college. Even with a 0 EFC the schools do not meet full need. 10-12K/year looks to be what DS will be paying at a 25K/year sticker price school. He can only take out what? $5500/year in loans on his own and I don't want him to have to borrow anything, which he shouldn't have to unless he does something like choose a spendy out of state school, which I highly doubt he will.

It sounds like the OP also feels strongly about having money set aside for college. Just stopping retirement savings for however many years to cashflow 3 kids through college could be a disaster on the taxes if they're higher income.

KlangFool
Posts: 12739
Joined: Sat Oct 11, 2008 12:35 pm

Re: Logistics of splitting tuition costs with child

Post by KlangFool » Thu May 16, 2019 3:03 pm

cshell2 wrote:
Thu May 16, 2019 2:50 pm
cshell2,

Normally, in those cases, either

A) The person does not earn enough to worry about saving for a college education.

B) The person is a 1099 contractor. Hence, the person could open his own Solo/Individual 401K.

Yes, there could be an exception. But, they're very rare.

KlangFool

He made 70K as a CNC programmer, I make 40K (50K if we get good bonuses and I work a ton of OT).

I still think it's important for me to save for my kid's college. Even with a 0 EFC the schools do not meet full need. 10-12K/year looks to be what DS will be paying at a 25K/year sticker price school. He can only take out what? $5500/year in loans on his own and I don't want him to have to borrow anything, which he shouldn't have to unless he does something like choose a spendy out of state school, which I highly doubt he will.

It sounds like the OP also feels strongly about having money set aside for college. Just stopping retirement savings for however many years to cashflow 3 kids through college could be a disaster on the taxes if they're higher income.
cshell2,

<<I still think it's important for me to save for my kid's college.>>

Which does not mean 529 is the right answer to save for a college education.

<<10-12K/year looks to be what DS will be paying at a 25K/year sticker price school. >>

Roth IRA contribution over 10+ years can cover this number easily.

<<It sounds like the OP also feels strongly about having money set aside for college. Just stopping retirement savings for however many years to cashflow 3 kids through college could be a disaster on the taxes if they're higher income.>>

Not as bad as if they are unemployed right before the kids go to college. That happened to me. I was unemployed right before my son started college. I was unemployed for more than 1 year.

If you have to pay tax, it is not as bad as no income to pay taxes.

KlangFool
Last edited by KlangFool on Thu May 16, 2019 3:15 pm, edited 1 time in total.

cshell2
Posts: 57
Joined: Thu May 09, 2019 10:29 am

Re: Logistics of splitting tuition costs with child

Post by cshell2 » Thu May 16, 2019 3:14 pm

Roth IRA contribution over 10+ years can cover this number easily.
I have maxed my Roth for the past 14 years. Luckily I won't have to tap it for college because there's 529 money for that. ;-)

KlangFool
Posts: 12739
Joined: Sat Oct 11, 2008 12:35 pm

Re: Logistics of splitting tuition costs with child

Post by KlangFool » Thu May 16, 2019 3:17 pm

cshell2 wrote:
Thu May 16, 2019 3:14 pm
Roth IRA contribution over 10+ years can cover this number easily.
I have maxed my Roth for the past 14 years. Luckily I won't have to tap it for college because there's 529 money for that. ;-)
Did you max up all your pre-tax accounts? If not, you are foregoing tax credits and tax savings for the 529 contributions. It may not be as good a deal as you think.

KlangFool

cshell2
Posts: 57
Joined: Thu May 09, 2019 10:29 am

Re: Logistics of splitting tuition costs with child

Post by cshell2 » Thu May 16, 2019 3:27 pm

KlangFool wrote:
Thu May 16, 2019 3:17 pm
cshell2 wrote:
Thu May 16, 2019 3:14 pm
Roth IRA contribution over 10+ years can cover this number easily.
I have maxed my Roth for the past 14 years. Luckily I won't have to tap it for college because there's 529 money for that. ;-)
Did you max up all your pre-tax accounts? If not, you are foregoing tax credits and tax savings for the 529 contributions. It may not be as good a deal as you think.

KlangFool
Every year, no. But with 2 kids at 40K, I am at a negative tax liability and leave a crap ton of non-refundable credits on the table as it is. The best I can do is increase EIC by 20 cents on the dollar, but I have to watch that because at a certain point it goes the other way. I did max everything last year and probably will again this year. Including Dependent Care FSA. Again though, my state gives me a $500 credit on 529 contributions (50% up to $1000). I only put in $100/month/kid since birth. Starbucks money to some of you here probably, but enough to help him out a lot.

Kennedy
Posts: 236
Joined: Mon Nov 10, 2014 2:47 pm

Re: Logistics of splitting tuition costs with child

Post by Kennedy » Thu May 16, 2019 3:39 pm

Why in the world are you concerned that your children will select a private out-of-state college? Just set the expectation early on that you will share in the cost of only an in-state public school. Why give your children the choice? We told our children since they were in elementary school that we will pay for tuition, room, board, books, health/car insurance and the like for the in-state, public school of their choice. They pay for clothes and spending money. That worked out very well for us. Private or out-of-state tuition was never an option.

KlangFool
Posts: 12739
Joined: Sat Oct 11, 2008 12:35 pm

Re: Logistics of splitting tuition costs with child

Post by KlangFool » Thu May 16, 2019 3:44 pm

Kennedy wrote:
Thu May 16, 2019 3:39 pm
Why in the world are you concerned that your children will select a private out-of-state college? Just set the expectation early on that you will share in the cost of only an in-state public school. Why give your children the choice? We told our children since they were in elementary school that we will pay for tuition, room, board, books, health/car insurance and the like for the in-state, public school of their choice. They pay for clothes and spending money. That worked out very well for us. Private or out-of-state tuition was never an option.
Just say no to "Private or out-of-state tuition".

KlangFool

Kennedy
Posts: 236
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Re: Logistics of splitting tuition costs with child

Post by Kennedy » Thu May 16, 2019 3:57 pm

Quickfoot wrote:
Thu May 16, 2019 2:46 pm
Ultimately if they have 100K debt from a bachelor degree they went to the wrong school. A lot of the problem these days is students see college as an experience rather than education. They will go spend 120K getting a bachelor degree when they could spend 40K on a comparable program from a different school.

Teaching children to make wise choices is the ultimate parental responsibility. Parents should not jeopardize their financial stability or retirements to provide for colleges that are over priced. There is a huge difference between want and need and our society has lost touch with that distinction.
This. 100%.

megabad
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Re: Logistics of splitting tuition costs with child

Post by megabad » Thu May 16, 2019 4:09 pm

Doc7 wrote:
Thu May 16, 2019 4:11 am
What is the logistical way of someone "paying for 75% of college costs"? At current savings rates and not covering it entirely from the 529 and my checking account, he would have a student loan or loans that I pledged to shoulder 75% of the costs of. Presumably he and I would be interested at making lump sum principal payments at various times in the life of this loan until it was gone (if he is anything like me... I wanted OUT of my student loan debt and paid it off within 3 years of graduation). I don't know how I would handle this from an accounting perspective?

I know an easy answer is to increase 529 savings rates, pay 75% each year as we go and the outstanding student loan debt is his alone to handle (this is how my parents did it), but for instance if he chose the college I went to it could easily cost 150k-200k per YEAR in 15 years and there is no way to account for that right now by simply increasing my 529 savings, so the scenario could play out no matter what I put my 529 savings to.
I think VA is an unlimited carryover state with 529 deductions. If so and if you plan on living there forever, I would front load a big chunk of what you think you will need.

I have a simple plan. I dump about 10k in the 529 when child was born and no more ever again. It grows to what it grows to but I feel pretty confident it will be short of the cost of most colleges. Everything else I will cover with taxable/cashflow. Done. I think I could pretty easily hit exactly 75% if I so choose (barring an unforeseen explosion in college costs/market disaster). I am assuming 2x401k, 2xIRAs, HSA etc are already being maxxed every year.

I knew a parent of one of my college buddies that made him take out the maximum subsidized federal loan amount every year. My buddy told me his father said this was helping him to have skin the game and he better do well and get a degree since he was going to have all this debt to pay off. Day of graduation, his father told him he sent a check to the student loan servicer to pay off all of his loans. Guy was shocked. I guess you could hit 75% this way too.

NotWhoYouThink
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Re: Logistics of splitting tuition costs with child

Post by NotWhoYouThink » Thu May 16, 2019 4:11 pm

Kennedy wrote:
Thu May 16, 2019 3:57 pm
Quickfoot wrote:
Thu May 16, 2019 2:46 pm
Ultimately if they have 100K debt from a bachelor degree they went to the wrong school. A lot of the problem these days is students see college as an experience rather than education. They will go spend 120K getting a bachelor degree when they could spend 40K on a comparable program from a different school.

Teaching children to make wise choices is the ultimate parental responsibility. Parents should not jeopardize their financial stability or retirements to provide for colleges that are over priced. There is a huge difference between want and need and our society has lost touch with that distinction.
This. 100%.
100% misunderstanding of how college is paid for. They cannot graduate from a bachelor degree program with $100K in debt because no one will loan them that much money. Someone might loan their parents that much money, and taking out that loan would be a bad idea. Taking out that loan and expecting/demanding that your kids pay you back would be a terrible idea. Co-signing a private loan so that the parents and kids share the obligation to pay it back would be a terrible idea. But all of those things are 100% within the control of he parents.

stoptothink
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Re: Logistics of splitting tuition costs with child

Post by stoptothink » Thu May 16, 2019 4:20 pm

NotWhoYouThink wrote:
Thu May 16, 2019 4:11 pm
Kennedy wrote:
Thu May 16, 2019 3:57 pm
Quickfoot wrote:
Thu May 16, 2019 2:46 pm
Ultimately if they have 100K debt from a bachelor degree they went to the wrong school. A lot of the problem these days is students see college as an experience rather than education. They will go spend 120K getting a bachelor degree when they could spend 40K on a comparable program from a different school.

Teaching children to make wise choices is the ultimate parental responsibility. Parents should not jeopardize their financial stability or retirements to provide for colleges that are over priced. There is a huge difference between want and need and our society has lost touch with that distinction.
This. 100%.
100% misunderstanding of how college is paid for. They cannot graduate from a bachelor degree program with $100K in debt because no one will loan them that much money. Someone might loan their parents that much money, and taking out that loan would be a bad idea. Taking out that loan and expecting/demanding that your kids pay you back would be a terrible idea. Co-signing a private loan so that the parents and kids share the obligation to pay it back would be a terrible idea. But all of those things are 100% within the control of he parents.
Did you read the initial post? I don't think it is a misunderstanding at all: "Parents should not jeopardize their financial stability or retirements to provide for colleges that are over priced." There is no delineation as to whom is saddled with this debt, only that someone is and that doesn't necessarily have to happen. Almost all students are ill-informed about this process and most parents are as well.

NotWhoYouThink
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Re: Logistics of splitting tuition costs with child

Post by NotWhoYouThink » Thu May 16, 2019 4:26 pm

Hmm, maybe this will start another marginal/effective rate diversion, but...

If you maximize your tax-deferred contribution as early as possible in your career, you are putting in money with comparatively little tax savings - maybe your savings are in the 12-15% brackets instead of the 32-35% brackets.

Then, when you are later in your career and in higher tax brackets, if you stop putting that money in your tax-deferred accounts and start using it to pay for college, you are paying at much higher tax rates, and you didn't get the benefit of years of tax-free growth.



Or, early in your career you could contribute both toward retirement and to 529s, so that you would be paying federal tax on the 529 contributions, but those contributions would have many years to grow tax-free, as long as the money was later used for education.

Then, when you are later in your career and in the 24-32-35% brackets, you could contribute more heavily to the tax-deferred accounts, and you'd be saving a big hunk of taxes. You might be able to max out those accounts and still continue contributing to the 529s if needed.

When the kids are in college, you can still take advantage of the 24-32-35% tax savings (or whatever the brackets are then) fully funding retirement accounts, and use 529 balances and free cash flow to pay for college.


As with all other financial plans, it depends on individual career path and earnings power and health and marriage and kids' academics and drug use and the world economy and many other things. You can't know the details now, you can play the odds and adjust as you learn more.

I know that I will be driving about 300 miles tomorrow to visit family. I don't need to know what the traffic will be at the major interstate interchange 283 miles from my house, and whether there will be a big truck speeding down the right lane when I am trying to merge. It would be silly for me to start planning now for that level of detail. When I get closer I'll know enough to figure it out. Knowing how to drive and merge and when to fill up the tank and check the tire pressure are important. Knowing unknowable future traffic conditions is not.

NotWhoYouThink
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Re: Logistics of splitting tuition costs with child

Post by NotWhoYouThink » Thu May 16, 2019 4:27 pm

stoptothink wrote:
Thu May 16, 2019 4:20 pm
NotWhoYouThink wrote:
Thu May 16, 2019 4:11 pm
Kennedy wrote:
Thu May 16, 2019 3:57 pm
Quickfoot wrote:
Thu May 16, 2019 2:46 pm
Ultimately if they have 100K debt from a bachelor degree they went to the wrong school. A lot of the problem these days is students see college as an experience rather than education. They will go spend 120K getting a bachelor degree when they could spend 40K on a comparable program from a different school.

Teaching children to make wise choices is the ultimate parental responsibility. Parents should not jeopardize their financial stability or retirements to provide for colleges that are over priced. There is a huge difference between want and need and our society has lost touch with that distinction.
This. 100%.
100% misunderstanding of how college is paid for. They cannot graduate from a bachelor degree program with $100K in debt because no one will loan them that much money. Someone might loan their parents that much money, and taking out that loan would be a bad idea. Taking out that loan and expecting/demanding that your kids pay you back would be a terrible idea. Co-signing a private loan so that the parents and kids share the obligation to pay it back would be a terrible idea. But all of those things are 100% within the control of he parents.
Did you read the initial post? I don't think it is a misunderstanding at all: "Parents should not jeopardize their financial stability or retirements to provide for colleges that are over priced." There is no delineation as to whom is saddled with this debt, only that someone is and that doesn't necessarily have to happen. Almost all students are ill-informed about this process and most parents are as well.

Topic Author
Doc7
Posts: 221
Joined: Fri Aug 24, 2007 12:55 pm

Re: Logistics of splitting tuition costs with child

Post by Doc7 » Thu May 16, 2019 7:54 pm

psteinx wrote:
Thu May 16, 2019 12:57 pm
Given a few facts from the OP:

1) OP's father (childrens' grandfather) is a PhD.
2) OP went to a private school now costing ~$70K (most of these are highly ranked with fairly tough admissions requirements).
3) OP's screen name is Doc7 (suggesting he's an MD, PhD, or other highly educated, likely high intelligence profession).

Further, given fairly common associative mating (i.e. OP's spouse is likely intelligent and well educated), plus the high savings rate, and maybe the likely overall typical education levels and the like seen on BH, and the likelihood that nature + nurture transmits much of this educational/intelligence drive to OP's kids,

THEN

It's pretty likely that OP's kids *will* go to college, and furthermore, fairly likely they'll be qualified for a good college. Possibly in-state, possibly private OOS. Don't forget UVA, of course.

Bottom line, if OP is already maxing out other tax-deferred savings options, it likely makes a lot of sense for OP to also go for a 529 fairly heavily. With kids at ages 1 and 4, it's pretty hard to anticipate the details of what their future education might entail. OP could move to a different state with less attractive public colleges, kids could have interests not well supported by public options, etc. But OP can also fine tune 529 savings rates, to some degree, later, as kids are say 12 or 16 years old and their educational path is at least a little more clear.

As for the, "make the kids pay 25%" thing : It's not unreasonable at a typical in-state public, assuming costs don't balloon too much in the next ~15 years. But it may be unreasonable at a ~$70K/year (2019 dollars) private that may in fact be very good for your kid. For instance, if your kid is a STEM superstar, and wants to go to MIT or CalTech and can get in there, do you really want to limit them to Va. Tech or even UVA?
Pretty good :p

I have a BS in engineering making approx $140K w/ overtime. Wife makes less than half, lthough she has a PhD and works at a major state school.

My savings rate that I stated included company match. So - keeping mind I am going up 1% on everything to get to 18% total instead of 17% at our next budget meeting next week - we are really saving 13% of my income (plus 4% match) to 401K, and 8.5% of her income (plus 8.5% state benefits match). Of her 8.5%, 5% is defined contribution to the 401a where the state is also sending 8.5%, and the other 3.5% is to a 403(b) (this is getting bumped to 4.5 next week). That is 17% of each of our checks going to retirement accounts after match. I would like to increase 1% per year until we are at 17% of our money, and the match is bonus on top. For myself, I can only get to 16% before I hit 401K contribution limit, we already max our two Roth IRAs annually so after that I would have to do the math to increase the savings rate on her paycheck to her 403b which would get us through another few raises/promotions before we were maxing out both of those at 19k ea plus Roth IRA (or IRA depending on MAGI).

I make overtime in every monthly paycheck of $1K to $2k (am currently a shift supervisor and we cover vacation shifts for each other regularly) and a yearly bonus of approx $15K. I save 17% of pre-tax amount and so far, every year for the last 4 years, we have maxed out both of our Roth IRAs and I am one paycheck away from maxing out 2019 contributions as well (I currently have $4,400 in my "roth ira savings" account, and already maxed out mine and have $4,500 remainder allowed to contribute to hers after january 1 investments, so I will do all $4500 in a lump sum rebalance in June).

Looking at the math of OUR money, excluding matches, we are saving $40K per year between my 401K (15K) , her 401a/403b (5k), $11K to Roth IRA and $700/mo to 529, which is 20% of our income.

We are saving $350/month to HSA but we do use this for medical costs and not as strictly a savings vehicle...

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