saving for private school

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chronogtm
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saving for private school

Post by chronogtm » Sun Jun 28, 2020 2:35 pm

Hi all!
I am trying to figure out the best way to save for private school (middle school/high school) for my child, who is currently less than one year old. I am building up the 529 from which I plan on taking the yearly 10k, but I'm looking for ways to save for the rest. Current income places us in the highest tax bracket. My plan was to invest in vanguard's muni fund for my state, as this would a) give me a tax advantage, and b) allow me the flexibility to do whatever I want with it should my child stick with public school. Are there better options? Am I better off just investing the money for more long-term goals and just paying tuition with cash on hand? Thank you!

retired@50
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Re: saving for private school

Post by retired@50 » Mon Jun 29, 2020 10:27 am

Assuming the 529 plan money can be used for private school tuition, that sounds smart.
But the main thing you need to consider is the time horizon in which you'll need the money. For short term needs, stick with CDs or short term bond funds. For longer term needs you can use stock index funds.

Regards,
This is one person's opinion. Nothing more.

Flashes1
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Re: saving for private school

Post by Flashes1 » Mon Jun 29, 2020 11:53 am

If you're in the highest tax bracket I presume private school tuition can be paid-for using excess cash flow (i.e. paychecks). 529's may be worthwhile given your tax bracket; however, the paperwork involved with submitting receipts, etc. may not be worth your time/effort.

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KingRiggs
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Re: saving for private school

Post by KingRiggs » Mon Jun 29, 2020 1:41 pm

Don't let "paperwork" scare you off, as there is none (unless asked to provide such by the IRS).

You can pay the school directly from the 529, in which case there's not much to track. I saved each semester's invoice for our kid's private high school as a pdf file just in case.

Cash-flowing is great if you can, but why give up the chance for tax-free growth over the next several years? Especially if your state gives a tax incentive for using a 529, it's a no-brainer at your income level.
Advice = noun | Advise = verb | | Roth, not ROTH

marcopolo
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Re: saving for private school

Post by marcopolo » Mon Jun 29, 2020 1:44 pm

Flashes1 wrote:
Mon Jun 29, 2020 11:53 am
If you're in the highest tax bracket I presume private school tuition can be paid-for using excess cash flow (i.e. paychecks). 529's may be worthwhile given your tax bracket; however, the paperwork involved with submitting receipts, etc. may not be worth your time/effort.
Submitting receipts to whom?
This is just creating unnecessary FUD.
Once in a while you get shown the light, in the strangest of places if you look at it right.

Topic Author
chronogtm
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Re: saving for private school

Post by chronogtm » Mon Jun 29, 2020 1:47 pm

Thanks all of the replies. The problem with 529’s is that I can only draw 10k per year for primary school. I was thinking of using muni bond funds to save for the rest but I’m not sure if I’m just better off investing my money elsewhere (for retirement) and paying for school out of cash on hand.

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KingRiggs
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Re: saving for private school

Post by KingRiggs » Mon Jun 29, 2020 2:41 pm

I was fortunate that when the laws changed allowing use of the 529 for high school, I had already accumulated enough that I was certain college was taken care of. I pulled out $10k/year for the last few years of high school.

To REALLY benefit from the 529, you want that time for tax-free growth to occur. I would probably say to continue thinking of the 529 as "college money", and sock whatever you deem appropriate into that to meet your savings goal. Money for private grade school/high school could be saved in something lower-risk, especially since you have an even shorter time horizon to use those funds. A municipal bond fund MIGHT be a good option at your income level, as you mentioned. Just realize it carries risk as well.

I will not bring up the whole private-vs-public debate, but I would not have considered private high school if I couldn't have afforded to pay it as an out-of-pocket expense. College costs will make high school pale in comparison, so that's what you really need to keep in your sights...

Best of luck!
Advice = noun | Advise = verb | | Roth, not ROTH

scubadiver
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Re: saving for private school

Post by scubadiver » Mon Jun 29, 2020 5:18 pm

chronogtm wrote:
Mon Jun 29, 2020 1:47 pm
Thanks all of the replies. The problem with 529’s is that I can only draw 10k per year for primary school. I was thinking of using muni bond funds to save for the rest but I’m not sure if I’m just better off investing my money elsewhere (for retirement) and paying for school out of cash on hand.
You are on track to answer your own question.

I have seen it stated before that 529 plans are not college savings tools for the middle class but rather tax avoidance vehicles for the wealthy. I repeat that here not as a political statement but in recognition of who is most likely to benefit when this investment vehicle is incorporated into their portfolio and its relevancy to your question.

Anyway, to your question. You can cash-flow the entire cost of private school, correct? With that in mind, the reason you are investing in the 529 is not because you "need this to save for private school" but because you wish to take advantage of the associated tax benefits. And you should, assuming of course that you are already maxing your 401k and (backdoor) Roth IRA space. To the point though, do muni bonds present some particular advantage to you such that you would invest in them absent your plan to send your child to private school?

If you are already taking maxing your contributions to those tax-advantaged savings vehicles (401k, IRA, 529s, HSA, etc.) the question becomes, "where else can I park my money" and not the very specific "should I buy muni bonds". Of course, muni bonds may be the answer to where else can I park my money, but I'm a little skeptical about that for now.

Topic Author
chronogtm
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Re: saving for private school

Post by chronogtm » Mon Jun 29, 2020 7:39 pm

Thanks again for all the comments. @scubadiver, you're right in that I'm looking for a place to park my money. Due to only having one child now, not doing much leisurely spending during covid, and both my spouse and I working full time, my cash flow is more in the black now than it may be during the years my child would be attending high school. I would like to allocate some of the extra money I'm making now (after 401k, roth, 529, etc) towards that expense and I'm trying to figure out what the best way would be to have a low risk, tax advantaged, medium-term investment for this purpose. Maybe it's munis? Maybe I'm better off with t bills or cd's? I guess that's my question.

scubadiver
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Re: saving for private school

Post by scubadiver » Mon Jun 29, 2020 8:20 pm

The majority of our savings is in tax-advantaged accounts. It's only recently that we started to build up a modest taxable portfolio. With that in mind, I don't personally have any great insights to offer regarding tax efficient investing other than to suggest the following, which is where I would start if I were in your situation.

1) I think we established this, but just to be clear, mentally separate how you manage the taxable portion of your portfolio and your future need to pay for private school tuition (at least for now).

2) If you haven't already, spend some time reading the boglehead wiki pages for taxable and tax-efficient investing.
https://www.bogleheads.org/wiki/Taxable_account
https://www.bogleheads.org/wiki/Tax-eff ... _placement

3) If you want a more informed response on how to optimize the taxable portion of your portfolio, you might consider sharing more information about your current finances. Include things such as monthly income, monthly expenses, current savings rate and the current sizes of your tax-advantaged and taxable portfolios. Exact dollar amounts are not necessary, but rough orders of magnitude would help. For the best advice, consider the following format: viewtopic.php?t=6212

Anyway, good luck and welcome to the forum.

Scubadiver

Topic Author
chronogtm
Posts: 4
Joined: Sun Jun 28, 2020 9:48 am

Re: saving for private school

Post by chronogtm » Mon Jun 29, 2020 9:30 pm

Thank you again for the helpful reply!

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