Suggestions for college savings

[wyoming82240]

Hello again,

I have a 4yo child. I have started to save for my child since year 1 in a 529 account. My plan is to fully fund my child 's education. In another post I made regarding home affordability, some have suggested me to keep 529 savings low as it will affect my child's fafsa. I am completely unaware of how fafsa works. More 529 asset means lesser the aid. Correct me if I am wrong. If I don't have intentions to use loans through fafsa, What good reasons are there to keep 529 savings low? Are there any better routes available to fund my child education beyond 529 savings? Please help me understand. Thanks to bogleheads who have reviewed my other post regarding home affordability and thanks in advance for those who have their time to respond to this question.

[teen persuasion]

Here is the link to FAFSA EFC formulas: https://ifap.ed.gov/efcformulaguide/at ... aGuide.pdf

Start on page 9. You can see how income and assets like 529 accounts influence your child's EFC by working thru the entries. See if you can get your family eligible for either the auto EFC = 0, or the Simplified Needs Test (which lets you skip reporting assets). Just be aware that the FAFSA rules/charts are always changing - they will be different by the time your child files.

[Ybsybs]

I also intend to save with the goal of funding an undergraduate education for each of my children.

I'm a fan of the Vanguard Age-Based funds from my 529 contributions.

The frequent desire to maximize student financial aid by NOT saving is misguided since aid is likely to be loans not grants. This is, however, an opinion and not provable without a crystal ball.

As I see it, these are the ways it could go:

(1) I can save, be wrong, and discover that some portion of what I saved would have been covered in grants.
Result: my child has a paid for undergrad and can graduate without student loan debt. Some family friends make fun of me.

(2) I can save, be right, and nobody at my income level gets need-based grants even if they didn't save.
Result: my child has paid for undergrad and can graduate without student loan debt.

(3) I can choose to not save, be wrong, and discover my kid gets some grants.
Result: my child has a partially paid for undergrad without me contributing much but graduates with some debt.

(4) I can choose to not save, be right, and my kid has to finance the whole education.
Result: my child has huge student loans.

Considering all of that, I'm going to save for college and accept that I may get ribbed about it.

[Ybsybs]

The one caveat I have for 529 savings is that if you have Roth IRA space unused, I suggest you max that out with your earmarked college savings money before putting it in a 529.

[cshell2]

Income has the biggest effect on FAFSA at about 22-40% of income being counted, while only 5.6% of assets outside of home equity and retirement are counted as available. I don't know about you, but I'd rather have $100 for college than $5.60 cents in aid! So, it's not like you're going to lose out on all this big money by not saving. We have an EFC of ZERO for next year, and unless my son lives at home and attends a local school we're looking at having to pay out more than half the cost of a state school anyhow even with a full Pell and a generous state grant program that not all states have. That's with a ZERO EFC. The "poorest of the poor" per FAFSA standards.

I just went with a 529 age-based. In hindsight I might have been more aggressive with it, but easy to say that now looking back on how the market has been the past 10 years.

I second making sure the Roths are fully-funded first as the contributions can be tapped for college (or anything) and that retirement in general is on track before saving for college.

[miamivice]

Hello again,

I have a 4yo child. I have started for my child since year 1 in a 529 account. My plan is to fully fund my child 's education. In another post I made regarding home affordability, some have suggested me to keep 529 savings low as it will affect my child's fafsa. I am completely unaware of how fafsa works. More 529 asset means lesser the aid for aid. Correct me if I am wrong. If I don't have intentions to use loans through fafsa, What good reasons are there to keep 529 savings low? Are there any better routes available to fund my child education beyond 529 savings? Please help me understand. Thanks to bogleheads who have reviewed my other post regarding home affordability and thanks in advance for those who have their time to respond to this question. Thanks.

Most financial aid is distributed in the form of loans rather than scholarships/grants. Thus, if you do not want to saddle your child with loans, then it's best to save or otherwise pay for college.

[augryphon]

Disclaimer: My DW and I made saving for our child's education our #1 priority. The financial folks will tell you otherwise, but we respectfully disagreed and we are blessed to have the means to do that (and meet our other savings goals too).

If you truly plan to "fully fund" your child's education, you can't go wrong with a 529. Personally, I wouldn't go the Roth route, because I wouldn't want to mix my retirement money with my child's college fund. And it you want to teach your child an invaluable lesson, show him/her/them how to set a goal and pay if forward. We even have a little left over, which could be in a Roth, but we are pleased to start process for the next generation.

[fortfun]

I'd use the 529, if your retirement is in good shape, just make sure to save some space for the college opportunity fund (tax credit).
https://www.irs.gov/newsroom/american-o ... nd-answers

Maybe Livesoft will chime in on this.

[goodenyou]

The most important question is how much income do you make, and how much are you willing to spend on your child's education. If you make a lot of money, the FAFSA is a waste of time. They will inform you that you have the ability to pay the entire costs of education. Many times, if you receive aid, it will be in the form of loans. So, to fund education without being "forced" to take out loans, save you must. A 529 Plan is a good way to set aside money for education, and for some families, it comes with tax advantages that cannot be found elsewhere.

The other factor is where your child goes and how bright they are. There are merit-based scholarships at many schools, but not at the most selective ones. That's where your savings will come in. If your child is "off-the-charts-smart", there will be financial options at some very good schools trying to lure you away from the Ivies where you will pay full-freight.

[wyoming82240]

Thanks everyone for pitching in your thoughtful suggestions. I found them very valuable.

[StealthRabbit]

Are you living / intend to stay in WY?

529 is not so valuable in an income tax free state.
(excellent) College is nearly free in WY
$6k / yr tuition at U of WY (great school BTW, I hire engineers from there if / when I can get them) Good teaching college...strong sciences
Hathway Scholarship (available to WY HS grads) https://hathawayscholarship.org/
k-12 is quite good in WY (likely won't need college for academics, only for sheepskin).

So you have some nice small colleges nearby (and adjacent to WY). I really like college / activities at Spearfish, SD. Does WY have recip college agreements with SD and NE? (Likely).

Not staying in WY???
Currently there are over 10 Free U's in USA and MANY overseas. Likely many more in 14 more yrs.

Consider some other options (than traditional).

WY kids do 4H ... County Fair 'feeder' animals fetch pretty big bucks at auction ($300 - $3000, & can start at age 8, and have several animals / yr)
Being 4H educated they will have a huge leap in (actual) leadership from their non-WY / country / 4H peers. Complete with project books as evidence. (US Presidents should have to submit their 4H project books to prove they can lead a nation).

Started our kids in Roths at age 12 (Not considered in FAFSA ), they had enough for 2 yrs of college, and our state offered FREE FT college instead of HS - done deal.
They also worked high wage summer jobs during college. (pay= ~2x annual FT college expense) dangerous, but interesting, adventurous, and good experience ! (one was working in WY quite a bit doing 'high angle ropes rescue training' for refinery and wind tower evacs)

WY has great employment opportunities for 'Gap Yr' ($80k + (lots of OT))

Gotta love all the options, When you are not 'constrained' to be 'Normal'
I would consider to offer to pay off your kid's student loan AFTER they graduate. You can use fully invested $$ for last 20 yrs, and pay with deflated currency.

(BTW: Hawk Springs was one of my last drops on 860 mile daily trucking run in WY... I got to wait for the Drive-in movie to finish when I was early to Torrington (haul Film as part of my load). Always waited for Continental Trailways (2AM) to 'bust drifts'
Good friend grew up in Lusk, and her dad built Roy Rogers saddles (also had a shop in Scottsbluff)
"Lusk Plunge" was a great place to cool off after a day riding on the range (Horses or motorcycles)

[chipperd]

The most important question is how much income do you make, and how much are you willing to spend on your child's education. If you make a lot of money, the FAFSA is a waste of time. They will inform you that you have the ability to pay the entire costs of education. Many times, if you receive aid, it will be in the form of loans. So, to fund education without being "forced" to take out loans, save you must. A 529 Plan is a good way to set aside money for education, and for some families, it comes with tax advantages that cannot be found elsewhere.

The other factor is where your child goes and how bright they are. There are merit-based scholarships at many schools, but not at the most selective ones. That's where your savings will come in. If your child is "off-the-charts-smart", there will be financial options at some very good schools trying to lure you away from the Ivies where you will pay full-freight.

+1. Great points here and accurate based on my experience with my kids. Your income from the time your child is second semester h.s. sophomore thru his/her years in college will drive a large chunk of how much is determined by the schools, you can "afford" to pay for school. But of course that's assuming the rules of the game will stay the same for the next decade +, so who really knows?

[RickBoglehead]

If you make a lot of money, the FAFSA is a waste of time.

Except that to get scholarships and some grants, you have to have filled out FAFSA...

[Ybsybs]

I'd use the 529, if your retirement is in good shape, just make sure to save some space for the college opportunity fund (tax credit).
https://www.irs.gov/newsroom/american-o ... nd-answers

Maybe Livesoft will chime in on this.

Thank you for mentioning this and sharing the link. I learned something new today.

[wyoming82240]

Are you living / intend to stay in WY?

529 is not so valuable in an income tax free state.
(excellent) College is nearly free in WY
$6k / yr tuition at U of WY (great school BTW, I hire engineers from there if / when I can get them) Good teaching college...strong sciences
Hathway Scholarship (available to WY HS grads) https://hathawayscholarship.org/
k-12 is quite good in WY (likely won't need college for academics, only for sheepskin).

So you have some nice small colleges nearby (and adjacent to WY). I really like college / activities at Spearfish, SD. Does WY have recip college agreements with SD and NE? (Likely).

Not staying in WY???
Currently there are over 10 Free U's in USA and MANY overseas. Likely many more in 14 more yrs.

Consider some other options (than traditional).

WY kids do 4H ... County Fair 'feeder' animals fetch pretty big bucks at auction ($300 - $3000, & can start at age 8, and have several animals / yr)
Being 4H educated they will have a huge leap in (actual) leadership from their non-WY / country / 4H peers. Complete with project books as evidence. (US Presidents should have to submit their 4H project books to prove they can lead a nation).

Started our kids in Roths at age 12 (Not considered in FAFSA ), they had enough for 2 yrs of college, and our state offered FREE FT college instead of HS - done deal.
They also worked high wage summer jobs during college. (pay= ~2x annual FT college expense) dangerous, but interesting, adventurous, and good experience ! (one was working in WY quite a bit doing 'high angle ropes rescue training' for refinery and wind tower evacs)

WY has great employment opportunities for 'Gap Yr' ($80k + (lots of OT))

Gotta love all the options, When you are not 'constrained' to be 'Normal'
I would consider to offer to pay off your kid's student loan AFTER they graduate. You can use fully invested $$ for last 20 yrs, and pay with deflated currency.

(BTW: Hawk Springs was one of my last drops on 860 mile daily trucking run in WY... I got to wait for the Drive-in movie to finish when I was early to Torrington (haul Film as part of my load). Always waited for Continental Trailways (2AM) to 'bust drifts'
Good friend grew up in Lusk, and her dad built Roy Rogers saddles (also had a shop in Scottsbluff)
"Lusk Plunge" was a great place to cool off after a day riding on the range (Horses or motorcycles)

Great suggestions StealthRabbit.

[wyoming82240]

I'd use the 529, if your retirement is in good shape, just make sure to save some space for the college opportunity fund (tax credit).
https://www.irs.gov/newsroom/american-o ... nd-answers

Maybe Livesoft will chime in on this.

Thanks, I never gave a thought on this credit.

[basspond]

We loaded up on our retirement savings, paid off the house, and cash flowed college. Like flight attendants say, take care of yourself first before strapping the air masks on your kids.

[scooterdog]

Source: in the middle of saving in 529's for three kids, oldest starting next year.

Save as much as you can in the 529; a Pell Grant even if you were to qualify is only $6K, the rest is loans which currently hit $1.6Trillion. Today's WSJ had a piece on the rising number of six-figure income households that are renting, and a major reason was crippling debt.

One strategy we may go with is to pay 100% of the first three years, with the last year funded by the child as a combination of summer work, part-time work, and a loan if necessary. More for training about responsibility than anything else.

No regrets in the slight chance we over-save; plenty of other beneficiaries the 529 funds can be shifted to.

[scubadiver]

We loaded up on our retirement savings, paid off the house, and cash flowed college. Like flight attendants say, take care of yourself first before strapping the air masks on your kids.

I agree with this 100%. I noticed in your other thread that you currently have less than $100K in retirement. By some metrics that puts you ahead of many in this country, but I think most on this forum would agree that at age 39 that's pretty sparse. I say that not to be critical but to make the point that you absolutely need to prioritize saving for your own retirement at this point. Contribute as much as you can to Roth IRAs for you and your spouse. If you have money left over, put more into your 403b or pay down on your mortgage balance.

Focus on getting your retirement savings well funded and maybe reevaluate in 8-10 years.

EDIT: OP, I did read some more from your other thread seeking home buying advice and I want to make it clear that I believe you are doing a great job of getting your family's finances in order. Kudos and welcome to the forum.

[krafty81]

I will be the contrarian here I guess. I did 529 pre-paid for both my kids. I bought them in states where it was "portable", could be used in any other state, although possibly for less value than in home state. Did it shortly after both were born. For my daughter, it was 4K in 92, for my son it was about 8K in 98 (he was 5 at the time). I never had to worry about stock market gains or losses (2008 hit my friends hard), and it was seamless having the state pay directly to the schools for tuition. I would do it again.

[wyoming82240]

We loaded up on our retirement savings, paid off the house, and cash flowed college. Like flight attendants say, take care of yourself first before strapping the air masks on your kids.

I agree with this 100%. I noticed in your other thread that you currently have less than $100K in retirement. By some metrics that puts you ahead of many in this country, but I think most on this forum would agree that at age 39 that's pretty sparse. I say that not to be critical but to make the point that you absolutely need to prioritize saving for your own retirement at this point. Contribute as much as you can to Roth IRAs for you and your spouse. If you have money left over, put more into your 403b or pay down on your mortgage balance.

Focus on getting your retirement savings well funded and maybe reevaluate in 8-10 years.

EDIT: OP, I did read some more from your other thread seeking home buying advice and I want to make it clear that I believe you are doing a great job of getting your family's finances in order. Kudos and welcome to the forum.

scubadiver: Thanks for your kind and encouraging words. I will certainly make my retirement a priority.