I love to get great recommendations from the bees...and usually follow your tips! Do you have any setup that you really like or are leaning toward? We want to decide this in the next month. 
Thanks.
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We aren't setting up a college fund for our kids. I actually kind of have mixed feelings on college. We figure that if our kids want to go, they can take out the loans to go. My sisters and I had to do that, and when its your own money you are spending, you tend to try a little bit harder
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My parents used something called a 529 plan (I think....obviously I could have the number wrong). You could set up multiple kids on it. For example, they had me (child 1) and my youngest brother (child 3) on a plan and then my middle brother (child 2) and my youngest sister (child 4) on the same plan. Granted if you don't plan on having more than 2, one plan is good enough.
We'll probably set something similar up. They didn't start ours until I was 10 or so. I got a lot of scholarships and HOPE funding so the out of pocket cost was pretty minimal though. I would say less than 5K plus books for a Bachelors.
FI and I have said we'll have enough put back for a PUBLIC college if they keep ___ GPA. I'm not funding their parties, but if they use college the same way I did, I have no problem helping out.
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We were deciding between an IRA or the 529 plan and we ultimately decided on the IRA. The IRA is set up under my husband's name, uses pre-tax dollars, and will be taxed when we eventually take the money out (maybe in a lower tax bracket). This isn't ideal but if we go with the 529, it would use after-tax dollars, and will have to be set up under LO's name, thus affecting any financial aid she might receive. The financial aid impact was the clincher for us.
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We're going to start one when we have a baby, and when we do we'll put 1/2 of all money given to/for baby into the acct until they are at least 14 or 15. This will ensure them money for school or whatever life post-high school might bring. We will write the checks out of it, and will have the final say on how it is used.
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@Red: Maybe it's different where you live, but here you have to claim your parents' income on the FAFSA (financial aid) as your own until you're either 25 or married (basically) unless you are legally separated from them anyway. As far as it affecting financial aid ability. Again, this could be different where you live, but I thought it was a uniform thing.
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For now, we have a basic bank account for our son. We put a large chunk in when he was born, and continue to fund it with monetary gifts...I prefer that our parents give our son money (although this didn't go down well with my MIL).
Having said that, we will provide what we can, and loans will cover the rest, unless he decides he would like to attend college abroad, where it will be free for him. I believe that you must have ownership in your college experience, so to me, that means loans and getting a job when you finish.
I also look at it this way: there are no loans available for our retirement, but there are loans available for college tuition.
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@AmeliaBedelia: No, it's the same here (CA) but the financial aid impact is greater if the money is in the student's name. Colleges look at the ability to pay kind of like a weighted average. For example, money under the student's name is weighed at 60%, parent's income at 30%, parent's retirement account @ 10%. I'm just making these numbers up so don't quote me but the idea is that financial aid folks will be less likely to deplete the parent's retirement account (and rightfully so) vs. a student college fund. The exact weighted average also depends on the specific college (public vs. private) you're looking at.
The way I see it, the money is going to be taxed either way (pre-tax or after-tax contributions) so you might as well get the benefit of better financial aid consideration.
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@Rosie Girl: from experience, I don't agree with that. My parents paid for all of my college and grad school and I worked my tush off, made deans list every semester. It was important for me to do good for my own future, plus just because it wasn't my money doesn't mean I'm ok wasting it.
I don't think it's a parent's job to pay for college, but I don't think it's bad if they help out either.
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When we have children, we will be doing a 529 for our kids with the goal of paying for their entire education and room and board. This is what my parents did for me, and I had a part-time job for "hamburger money". When I graduated, I had 0 debt and was able to put my income towards a down payment and bought my first house at 23.
Just like Artbee, my brothers and I all worked our butts off in college because we didn't want the hard earned money our parents had put towards our education to go to waste. We are all now successful working professionals with no school debt. -
@Red: Great idea about using the retirement. I'm assuming a Roth? right?
Thank you, everyone. (More comments welcomed....)
I'm forwarding this whole thread to hubby as food for thought.
For the record, I went to college off the financial aid dime and thought my daughter could do the same as I didn't want to save in our limited budget. My thinking is that our kids have much more time/opportunity to pay off loans and we have a finite amount of time left to earn for retirement. But DH had to go the college loan route and he is very adamant about saving. I suppose a little would be good to contribute I still want my daughter to work part time in college and save a little of her gift money as she's growing up so she is financially literate and hopefully values money properly.
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I am really intrigued by putting money away in a parental retirement account for college. I mean, you have to pay the taxes on a distribution, plus the penalty, so you've got to save above and beyond what's need for tuition. Interesting.
eta: regarding the penalty, maybe it is a moot point if one of the parents is legally retirement age and could take an honest distribution at the time of college for their child.
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@Looch we feel the same way about saving for retirement versus saving for college.
We will put an emphasis on if they want to go to a private college or somewhere out of state they will need to work really hard to get scholarships. Any money that they receive from our parents over the years will be put into an account for them. We are also going to have them get summer jobs once they are older and have them save that as well. I can see us providing them with some money to live off of during semesters so they don't have to work. My husband's mother paid off his student loans for him once he graduated. We will consider doing that.
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We plan on setting up a fund but it wouldn't be a labelled a college fund. My husband didn't go to college and it's a bit of a sore subject for him because people assume you have to go to college to have a good life and if you don't, you get looked down on. We are of the opinion that college isn't for everyone and wouldn't want to force our kids into something that isn't right for them. If they prove they have a good path lined out and are taking care of themselves and earning a living then we have no problem allowing that money to be used for buying a home or a car or other necessity.
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@eeh: That is an EXCELLENT point!! And I really like the idea of a "future investment" fund, whether it's for college, starting a business, buying a house...etc.
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@eeh: This is what we plan on doing. Neither of us went to college so we aren't going to force it on our children but we do want to be able to help them out a little when they are leaving the nest.
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I work in private wealth management and I'm happy to answer any questions you guys may have on the subject.
For those of you who aren't psyched about the idea of a 529 look into something called a UTMA or UGMA account. You don't get the tax benefits of a 529 but there are less restrictions. With a 529 there are very limited "qualifying expenses" and if the child doesn't end up using all the money in the account for college then you end up having to transfer the money to another minor who can use it for college. You can't just take it out. With an UTMA account the money can be used for any expense that is for the benefit of the child. So for example if your child had really bad allergies and you needed to rip all the carpet out of their room... the money could be used for that. But it couldn't if it was in a 529. Also, on an UTMA account once the child reaches the age of maority (18 in some states 21 in others) the account transfers to their name and they can use the money as they see fit. So if they ended up not going to college they could use the money for other things.
I would say I suggest starting to save for your child ASAP. Even just $50 or $100 a month can make a huge different. The more time the money has to grow the better!
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@artbee: No, I don't think its bad if they help out, mine did. But knowing that I was investing in my own future made me want to make sure that I did something with it! I had to do loans and financial aid
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We will start a 529 when our child is born, and both sets of grandparents have said they have sums of money they want to add which will be a great jumpstart. We'll then add in a monthly amount as well.
We also currently use Upromise, run through Sallie Mae, which is a free program to sign up for and you get certain % cash back on qualifying expenses. You can use it in conjunction with a points credit card, so you can get both your points/cash rewards through your specific card, and then cash back through UPromise. Right now, our cash back savings go directly into a high yield savings account, once we open a 529 account, the money will go directly into there. It's an easy way to save (granted, its not much, but every little bit helps).
Both my husband and I (as well as all our families) view college as a necessity, and also as something we as parents have a responsibility to help provide for our children, so we'll do what we can to help.
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@808love: @Looch, We used a traditional IRA and there are no penalties when you take money out for education for both the traditional or Roth IRA.
I also agree that college isn't for everyone, which is another reason why we like saving the money in an IRA. If our LO isn't planning to go to college or if she turns out to be spoiled brat and doesn't deserve the money then we're more than happy to spend that money in a round-the-world cruise.
BTW, I put myself through college with grants, scholarships, loans and a part-time job and graduated only owing $12K, but costs have quadrupled since I attended college and it's only going to keep increasing so our children are going to need all the help they can get. We're planning to cover tuition, books, and modest room & board. Spending money and incidentals are still my LO's responsibility.
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I should also add that 529 plans are state specific so you should check your own state for details. I'm only speaking specifically about our situation and our choices.
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@Red: Thanks for the info! I didn't realize education expenses were penalty free for the dependents of the account owner. I really think an appt with our financial advisor is in order...I have a Roth IRA.
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We hope to set up an RESP (this is Canada), for each child, but other than that, no. Our parents weren't able to do so for us, and we did fine by ourselves. I was able to live at home, and get a job to pay for all school expenses myself. It was only for my first year and for my second degree that I needed to get student loans, which are nearly paid off now!
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We are setting up a 529 plan. We will contribute to it when we can and my parents have said that they will contribute to it on an annual basis, too.
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We just have a regular account for her online. It's a high interest savings account. I figure that we will agree to pay for her first year and then she's on her own.
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@looch: I agree with you in principle, but wanted to point ut that student loans are the world's worst loans! A good primer on that here:
http://consumerist.com/2010/09/student-loans-gateway-drug-to-debt-slavery.html
I took on enormous personal debt to pay for college, but was fortunately able to pay it off. On the flip side, I have friends who had their lives ruined by student loans... it really is a horrible loan product run by an evil industry.
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Mr.Bee - I agree with you. What really kills me too is that we had it drilled into our heads how "evil" private loans are (and some are), and to max out federal loans (which I and many other students had to do). The interest rates for federal loans are fixed at 6.8% interest, while my 2 private loans are are 5.something% and 3.2% interest!!! Much lower than the federal loans. Sucks. And my parents even paid for my first year of college, and I went to a state school (post-grad did me in).
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We started a 529 for our LO. For our circumstances it was the best option
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My husband works for a University and will most likely continue to when LO is in college. Currently, employees' children receive free tuition. We plan to save so we can pay for our child's room & board, meals, etc. If they choose to go elsewhere, they can pay tuition. We feel strongly that our child will need to have at least a master's by the time they are in the workforce so they can pick their graduate school.
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I wish I remember what my tuition and room/board where when I was in college. I just looked it up for the school year 2011-2012 and total cost is $54,000. That is 15 years later, and it's ridiculous! Sorry, but 4 years at a 2nd tier school that costs over $200,000? I think that's more than double what it cost me to attend. Not sure what we'll do.
I think another avenue to explore is employer financed education. I missed out on over $50k of tuition reimbursement at my former employer. If I were smart, I would have started part time as soon as I was eligible instead of waiting 7 years!
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I know we're going to save something for our child's college but I know for sure we won't be able to save the full amount. With the way College tuitions are going up each year and how poorly the stock market is doing, we won't be able to grow our money like our parents did. I think our expectations are going to be that our child go to community college for two years before going to a regular college OR they get jobs to help pay for their classes/books/housing/etc.
We were both lucky that our parents paid for our college tuition but I just don't see us being that lucky. I was reading an article on USAA that said you need to put away $400/month towards a college fund for EACH child from the time they are born to be able to cover the cost of what college will be in 18 years. Frightening. We can't do that with everything else we're saving!!
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THanks so much for the posts lately. We have to decide soon. I'm leaning toward the retirement investment. I also want to learn more about the UTMA. Never heard about it before.
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My parents saved all of the money they planned to use for mine and my siblings college educations in mutual funds. Worked great!
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I do agree it's important that kids contribute to their educations (I worked at school and over each Summer to pay for a lot of mine, applied for, got and maintained scholarships, and took out loans, as well as had a lot of help from family), but I think it's somewhat selfish and shortsighted to leave the whole college thing entirely up to your kids and let them start their professional lives with debilitating loans. College is insanely expensive, and pretty much necessary these days, more and more so, to have a good job and support yourself for life. It's just the norm, doesn't even set you apart in the race to get a job anymore, but NOT having a college degree does. Most people I know go with a 529 plan and we probably will, too.
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We have the Utah 529, which is rated one of the best in the country. We are also fortunate in that I can start taking from my 401K without penalty when our daughter is a Junior in college. (One of the few perks of being an older mom!). So we've budgeted so that the first two years will be paid for by 529 and the second 2 years by 401k. Oh, and my employer pays for 1/2 of tuition!
I should say that my education was funded entirely by loans, but I haven't paid hardly any of it back. There are lots of different loan repayment options including work in underserved communities, certain types of jobs (medical research) etc. I will have my copious loans (undergrad, grad, post-bacc and med school) paid off in 2 years without substantial contribution from my own pocket. Oh and it helps that I went to state schools!
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Thank you to everyone who contributed to this thread. DH bit the bullet and started up a 529 yesterday. I was still hemming and hawing...wait we didn't research enough. He said we have to do something already or we'll keep putting it off. Hope it doesn't have fees. I'm going to bug him to show me all the info on it today. I felt really good about it though. This was a nice little comparison chart I saw but really, I didn't do too much legwork myself.
http://www.529.com/content/529vsothermethods.html?uiicid=investtab -
I just wanted to pipe in and say that my parents saved for our college in annuities, and they lost almost half their value when the economy tanked. With something like college, I would highly recommend putting your savings in something that's very secure, even if there isn't much return.
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