Tweet
I have seen some other posts on this topic and thought I would like to see some opinions on what others think I should do for my situation. I have one 14 month old child and another one on the way in May. My wife and I plan to have 2 more kids. After our current budget I have found that I have $400/month that I would like to put away for my kids college. I don't necessarily want to put in a 529 because there is a chance my kids wont want to go to college or they might get a scholarship. If they don't go to college, I might want to use the money to help them purchase their first home. My question is, where can I put my $400/month and get a good rate on that money in say 18 years?
-
-
With 4 kids there is a very good chance that at least 1 or 2 will go to college. If you start putting the money in a 529 for your 14-month-old, you can transfer funds to his current and future siblings without penalty later on.
A second (but not quite as desirable) option is putting the money in a Roth. Withdrawals for college are not penalized but earnings will be taxed. If you find that you don't need the funds for college, they can be used for your retirement untaxed and unpenalized. -
Congratulations on being financially responsible for your kids.Originally posted by Langlo Family View Post
First, please do your homework. Not all plans are created equal. All plans must at least abide by the laws that charter them, but outside of that, each plan has its own pros and cons depending on your situation.
Go to Google and dig around. You'll find several popular sites with good information.
I think the biggest misconception is that you have to go with a particular plan since you live in a particular area. I tried to convince my cousin to do research outside of his state's plan but he was adamant that he was stuck with it since he lived in the state.
The other misconception is you have to spend the money on a particular beneficiary for a particular purpose. Again, the particular details depend on the particular plan.
Please do your research before limiting yourself to a specific plan.
As far as the underlying security is concerned, buy stocks in small companies overseas in underdeveloped markets. Not withstanding that, aggressive, high growth, international index funds are your best bets.Originally posted by Langlo Family View Post
That's what I'm doing with my money, but generally that's too risky for most people. I would consider speaking to a financial planner to determine how much risk you're willing to take.
As far as tax benefits are concerned, I would discuss that with a financial planner.
A piece of advice my planner gave me is to determine the amount of savings you can achieve by the time each kid reaches college age. Then calculate an equal amount for each kid. If a kid gets a scholarship or decides not to go to college, you can reshuffle the numbers around.
The most beneficial advice I found was to communicate the numbers to the kids while they're still young. That way, when they are of age it won't become an issue. Otherwise, the kids will build deep resentment towards the parents and it may take years to resolve if they think you favour one over another.Comment
-
When I read your post, I thought "wow 4 kids"! It's great that you want to help them with their futures, however I would highly caution you to take care of you and your wife's future first. Do you have a solid emergency fund? Do you have all credit card debt paid off? School loan debt? Medical debt? Car debt? How much are you saving for retirement? If you arn't saving a lot for retirement, I would suggest that you do that first, and then consider the college savings. I would only save for the college fund if the only debt you have is your mortgage, have a good emergency fund and ONLY if you already have a great retirement savings plan. I don't personally think it's worth it to work 10 more years to give some money to your children for college, when there are ways for them to pay for college themselves.
If all of these things are in place, I really do think this is an excellent idea, I just wanted to mention these things to get you to think about them more.
Good luck.Comment
-
Thank you for all of your tips. I do have a solid emergency fund. I have 4 months pay saved up and I'm still adding to that. All CC debt is paid off. No school loan, no medical, no car debt. I am putting 10% away w/ a 4% match of my salary into our 401k. I also max out the IRA. I don't even have a mortgage as the house is paid for. Only property taxes. I have thought long and hard about this and thats why I decided on the fixed amount of $400/month. As more kids are born or salary increases, this might change. Thank you everyone for your help.Originally posted by anonymous_saver View PostComment
-
Originally posted by Langlo Family View Post
I don't know what your salary is, but are you close to max'ing out the IRS limit?Comment
-
Whatever money I save for my kids I plan to save in my name, not theirs. My understanding is that children are expected to pay a much larger percentage of their assets towards education than their parents. As DH and I will never be large earners, we want our kids to be able to get the maximum amount of assistance and pay the least out of pocket. We both went to school on grants, scholarships, and Stafford loans. Our tentative plan is for our kids to go the same route, but assist them with repaying their loans IF we are able at the time. Your situation sounds different though - we also are not at the point where we are debt free (student loans) nor have we maxed out our retirement savings. I would probably be tempted to put that money into the stock market/mutual funds in my name for 18 years (maybe even a target retirement fund for 2025-2030 so that it becomes less risky at the time you will need it). Good luck.Comment
-
jodi, during my college career I saw a drastic reduction in federal financial aid. With the increasing federal deficit, I can only hope that it doesn't get much worse in 18 years.
The other problem I had qualifying for need-based aid is that although I was applying as an independent and my parents were divorced, I was still tied to their income even though none of them supported me.
So the problem was although my parents were obligated to provide aid, they never did. In the eyes of the government, I didn't qualify for need-based aid due to combined parental income from 4 people (both my parents remarried).
At the same time, it's not fair for the parents to become low-income just so the child may qualify for need-based aid.
I don't know if there's a good solution. I think most people have enough difficulty saving for retirement without having to worry about providing for several college educations.
I personally ended up with a lot of private loan due to a lack of parental and government aid. I just think that the level of income to be considered for need-based aid should be raised much higher than what it currently is. I think the intent of the law was to prevent rich kids from getting a free ride, but the current limit punishes the middle class families who are already struggling just to save for retirement.Comment
-
They say aim for covering 1/3rd of college costs. I am aiming for 2/3rds but that's entirely a personal decision. "They" (the pundits) suggest 1/3rd because of the possiblity of no college for a child.My question is, where can I put my $400/month and get a good rate on that money in say 18 years?
Although I am more "sophisticated" with our retirement investments, we use a "Target" fund for a kids college. A Target fund is one of those funds that automatically changes it's mix from stocks to bonds as the child gets older.
We have a Target 2015 for our 10 year old and a Target 2020 for our 4 year old.
Just about all the mutual fund co.'s have "Target" funds.Comment
Comment