time to consult a pro?

[crabbypatty]

Last night I found out that our children will each be receiving sizable checks to be used for education.

At this point though I feel like maybe I ought to consult with an advisor. Remember my fear about losing my children's money through bad financial investments. An advisor could also help me with that rollover issue as well.

Or I could park it for a while until I do more research and handle it on my own. I have no intention of putting blind fath into any one advisor, I just need some help in organizing and understanding our options as well as our tax obligation to their money etc.


WDYT?

[jIM_Ohio]

define sizable.

Is it enough to pay for 4 years at a state school (25k)?
Is it enough to pay for 4 years ata private school (80k)?
Is it seed money to pay for above (5-10k)?

If you have enough money from the gift to pay for reasonable education, look for investments which are safe and grow at 6-7%. 50-50 type mixes between stocks and bonds.

If this is seed money, I would put it in a growth type offering, looking for an 8-9% return. 80-20 type mix between stocks and bonds.

If child is less than 6 years from college (12 or higher), I would add 5% bonds for every year closer to 18 to either of above. (so 20% bonds for a 12 year old would be 25% for 13... and 50% for an 18 year old).

You need to know educational needs of kids.

Maybe the 12 year old is academically gifted and will get scholarships, where as a 6 year old looks on slow side and will need more help. Many factors would change advice I gave above. And I don't mean to insult anyone's kids intelligence.

A few things to consider. If you think kids can qualify for need based aid (based on parents income level), then ask person giving gift to invest it themselves and keep gift out of kids name until they are 18.

If projections for money are close for age 18, consider taking a loan for 4 years of school, and letting money in investments grow another 4 years. There are tax deductions for education expenses and interest paid, so use this to your advantage (if student loans can be had at 4%, and you know the deductions on income tax reduce this by 25%, and the investments will be growing around 6%, you may have a better situation at age 22 for child than you do at age 18).

smartmoney magazine had an excellent financial aid issue several years ago. Showed how to hide things from financial aid form... talked about pros and cons of money in kids name vs money in parents name...

[tinapbeana]

just a word on costs: 4 years in a private school is going to be WAY more than 80k. my 4 years in a private school was approximately 90-95k 10 years ago, and that's tuition only... blech!

i'm pretty sure there are calculators floating around that guesstimate what education costs will be for your child based on the child's current age.

[scfr]

crabbypatty: You could consult an education specialist at Vanguard for free: 1-866-734-4533 [You could get some information first at Vanguard.com, go to the personal investor section, and then click on the "Planning & Education" tab.]

I don't know if your are considering placing the college money with a mutual fund company or if Vanguard is the company you would choose, but it certainly couldn't hurt to talk with them.

I love Vanguard. My husband & I are both self-employed and their small business specialists have been most helpful. Knowledgeable folks, and absolutely ZERO "hard sell."

[jIM_Ohio]

just a word on costs: 4 years in a private school is going to be WAY more than 80k. my 4 years in a private school was approximately 90-95k 10 years ago, and that's tuition only... blech!

i'm pretty sure there are calculators floating around that guesstimate what education costs will be for your child based on the child's current age.

The range on private schools tuition will vary. 20k/year (or less) will get you a good school. I could point someone to a top 5 engineering program which will have a net cost of $65k over 4.5 years.

But it depends on why someone wants a private school... and in many cases the most popular schools are the state schools anyway.

half my graduating class paid in state tuition at SUNY Buffalo
most of my college fraternity brothers had friends attending U of M Ann Arbor
many people I talk to hear in Ohio go to UC, Ohio State or Miami (Oxford), all of which have in state tuition, and are reputable schools.

[Joan.of.the.Arch]

(My whole comment is not about what you are asking, hence the parentheses. If you have a gift to be used for education, please consider whether it might be at least partially used for _current_ education. Are the kids getting topnotch education now? Topnotch by whatever your criteria are, I mean. Is there some supplement, alternative means of schooling, or enrichment that can help them a lot right now? Do they have a talent, passion, or gift that they could pursue now with this money? Or even a weakness that needs to be addressed?

Personally, I thought it was my responsibility as a parent to educate my child as well as possible when he was young. I trusted that a good early education would carry him far and that college opportunities would work themselves out. We made some somewhat unusual early education choices, holding high but flexible standards in the present. We figured that was the best way to set him up for a positive future. Things did work out. He is in college with a full scholarship which includes enough to help meet living expenses. Giving him an individualized educational path in those early years allowed him to really find his unique talents and interests so that he went off to college happily focused and able to handle his studies. We also allowed early on for the possibility that perhaps college would not be for him! Education is very important to us, but it does not necessarily have to be bought at a university.)

[tinapbeana]

The range on private schools tuition will vary.

without doubt

But it depends on why someone wants a private school... and in many cases the most popular schools are the state schools anyway.

i went to a private school because that is where i got the biggest scholarship, in my case full tuition at emory vs full tuition at university of south carolina. there's no way i personally would have been able to pay for it, but it is a good school that many people choose to attend and pay for.

i brought up the price disparity b/c many 'name brand' schools are looking at 25-30k per year (tuition only) right now, with 5-7% increases every year. name brand schools might not necessarily get you the best education (UGA has a better bar pass rate than Emory, and U of SC has a better rated business school), but name brand schools do give a graduate a lot of curb appeal in the job market. not saying it's right, just that it happens.

to the OP, i'm not sure what age your children are, but if they're old enough to have shown definite interest in a field of study or career path, perhaps price out 5 colleges that excel in that area and work out an expected pricetag, and work with that in mind for a goal...

[disneysteve]

Last night I found out that our children will each be receiving sizable checks to be used for education.

How old are your children? Unless they are close to college age, I would open 529 accounts for them and put the money in an age-based portfolio that automatically adjusts as they approach college age. It is the college savings equivalent of the targeted retirement funds we all talk about.

How to choose a 529? First, check if your home state offers a tax deduction for contributions. If so, that is usually the best choice. Otherwise, check the ratings at savingforcollege.com. I believe Utah currently has the top-rated plan. I'm with the NY plan which is pretty similar. It is run by Vanguard and has very low fees and good investment choices.

[jIM_Ohio]

without doubt


i went to a private school because that is where i got the biggest scholarship, in my case full tuition at emory vs full tuition at university of south carolina. there's no way i personally would have been able to pay for it, but it is a good school that many people choose to attend and pay for.

i brought up the price disparity b/c many 'name brand' schools are looking at 25-30k per year (tuition only) right now, with 5-7% increases every year. name brand schools might not necessarily get you the best education (UGA has a better bar pass rate than Emory, and U of SC has a better rated business school), but name brand schools do give a graduate a lot of curb appeal in the job market. not saying it's right, just that it happens.

to the OP, i'm not sure what age your children are, but if they're old enough to have shown definite interest in a field of study or career path, perhaps price out 5 colleges that excel in that area and work out an expected pricetag, and work with that in mind for a goal...

I agree... I chose my college based on 99% of graduates having job offers in hand prior to graduation (I actually worked full time for 9 months with benefits at my current job prior to actually having degree in hand).

The other 1% are usually going to grad school/med school/law school.

Add to that my school frequently has repurable grad schools waive the need to take GRE/GMAT tests for grad school. UC accepted me into their Masters of Engineering program, waiving all tests because of undergrad degree from a certain university.

The point needs to be kids need to understand college is not a right... it's a privelidge and opportunity... it is also not for everyone. Because it costs so much... if a child is unsure, a smaller state school or community college has less risk to it. Scholarships further reduce that risk as well.

[crabbypatty]

So the general consensus seems to be that I can handle this on my own.

I know that the grandparents have a 529 for each so I'll have to talk to them about it. The kiddo's are not in any kind of school yet so the money has a lot of time to grow. But Joan, I like your idea about flexibility in what money for education means.

Thanks guys. I'm going to think about all of the posts. If anyone has other ideas, keep posting.

[Ima saver]

Well, I do honestly think you will do just as well, if not better, in handling the money yourself. Plus, you won't have to pay any fees. I got involved with Edward Jones and they gave me lots of advice, but it was to buy mutual funds from them that charged load fees.
I went instead with Vanguard, so I could buy mutual funds and pay no fees. I would talk with them also if I were you.

[disneysteve]

So the general consensus seems to be that I can handle this on my own.

Absolutely!

As for my 529 advice, if they already have 529 plans, just be careful not to overfund them. If the money doesn't get used for educational purposes, you pay a 10% penalty (and taxes on the gains) when you withdraw the surplus.