Saving for college

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I have a 1 year old daughter, she's precious but I don't want to go broke paying for her college so is a 529 plan still the way to go? I don't want to choose her college and if she decides not to go I don't want to be taxed for not using it
 
Maybe consider splitting the cost. $11k a year for classes currently, save up $30k for her education? $2,000 a year for 15 years is $166 a month.
 
I copied this off some random website and cannot vouch for the accuracy of the information, but it sounds similar to what my CPA wife has been telling me.

"Only the earnings portion of a non-qualified withdrawal is subject to a 10% withdrawal penalty
•Distributions are allocated between principal and earnings on a pro-rata basis.
•That means that your withdrawal is divided into contribution and earnings based on the following formula:
•Account Contributions / Account Value x Distribution = Contribution Portion.
•Your contributions (the amount you originally deposited) will never incur penalty.

What are the exceptions to the penalty rule?
•If the beneficiary dies or becomes disabled
•If the student decides to attend a U.S. Military Academy
•If the student receives a scholarship
•In all of these cases the earnings portion of the withdrawal will incur income tax."

http://www.savingforcollege.com/intro_to_529s/what-is-the-penalty-on-an-unused-529-plan.php

This is the downside to the 529, it is strictly intended for educational costs and you will be penalized if you use the money for anything else. Not having to pay the penalty if your kid gets a great scholarship is a nice feature, and you can also spend the money on your own education without the penalty if your kid doesn't use it.
 
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I think the only other downside on a 529 is they consider it the child's money when it comes down to scholarships and/or financial aid; I may be wrong on this though.

You're a long way off and it's great to start thinking about it but don't forget your retirement and things like that. Turning older happens almost in a blink of an eye ... I'm in my middle 50's and it seems like yesterday I was 20. A lot of people are having children older and still haven't started saving for their retirement and then have a college bill once the child graduates and the parents are close to retirement age.

Try to get it into your children head to do well in school to get that scholarship (didn't work with my 2 sons) and there are sometimes alternatives to attending a 4 year school to make college education more affordable. Here in Jersey a bunch of 4 year colleges teamed up with community colleges and have an automatic enrollment into a program - 2 years of cheaper tuition helps stretch the dollar when it comes to college. Of course in the time your daughter is ready for college who knows if programs like this will still exist.

Good luck! We didn't have a plan for my 2, I didn't research the 529 account back then but then again we probably weren't able to fund it at the time.
 
My niece did 'dual enrollment ' while still in high school here in Florida.

Go to community college while still in high school and wipe out the first two years of college (English, speech, math, statistics, etc...) for very little money as those credits are inexpensive. That way when she graduates high school her first two years of college are also completed.... simply transfer those credits to any 4 year school and you can have a bachelors degree at 20 years old.

Dual enrollment is growing due to college costs and students trying to avoid school loans.
 
A 529 is the best way. It can be used for others to go to college. IE., other children or similar. So if the one intended did not go it still could be used. At least in NY. We
 
Originally Posted By: Mr Nice
My niece did 'dual enrollment ' while still in high school here in Florida.

Go to community college while still in high school and wipe out the first two years of college (English, speech, math, statistics, etc...) for very little money as those credits are inexpensive. That way when she graduates high school her first two years of college are also completed.... simply transfer those credits to any 4 year school and you can have a bachelors degree at 20 years old.

Dual enrollment is growing due to college costs and students trying to avoid school loans.


My youngest is doing this now. He's turning 22 in May and he is going through community college with the intent to get into a 4 year school at the end of this. He went a different path in High School - HVAC trade but no work for a beginner. So he is on "Plan B". Community college is a great way to get started and stretch the money ... too expensive the other way ... my oldest is proof of that!
 
I was advised to open a ROTH IRA for the education account in the kid's name. It is much more flexible than the 529. Fidelity has a ROTH IRA option for children that a parent or grandparent can control. I haven't looked into that much so I don't know the details or requirements.
 
There are far, far to many unknown factors to determine what might be best for your situation. It's good to be thinking about and plan for; but things change over time so there is no plan that is good for every parent and every student.

It also depends on the academic qualifications of the student. Will she be an "average" student whereby the community college route might be good; or an extremely exceptional student who might be able to get into and handle the rigorous programs in a top private like Rice, Northwestern, etc. There is a big difference.
 
Have you maxed out your annual Roth IRA contributions($5500/yr) ? Have you maxed out your annual 401K contributions ($18,000/yr)?

You max out your own retirement accounts, before you even think about saving money towards someone else's education. Invest in yourself first.

Your kids can get a loan for school. You cant get a loan for retirement.

Opening a Roth IRA in your kids name is likely a better option, although I would still encourage them to keep the money in the Roth unless absolutely necessary so it can grow.

Also, with the way things are going in this country, it would not surprise me if a college education was provided free of charge to all in 20 or 30 years time.
 
Originally Posted By: bubbatime
Have you maxed out your annual Roth IRA contributions($5500/yr) ? Have you maxed out your 401K ($18,000/yr)?

You max out your own retirement accounts, before you even think about saving money towards someone else's education. Invest in yourself first.

This..The way the world is going...........
 
Originally Posted By: Mr Nice
My niece did 'dual enrollment ' while still in high school here in Florida.

Go to community college while still in high school and wipe out the first two years of college (English, speech, math, statistics, etc...) for very little money as those credits are inexpensive. That way when she graduates high school her first two years of college are also completed.... simply transfer those credits to any 4 year school and you can have a bachelors degree at 20 years old.

Dual enrollment is growing due to college costs and students trying to avoid school loans.


My youngest is doing this as well. In fact, she will graduate with her associates before her H.S. diploma.

I expect it will take more than 2 years to complete her bachelors, but still, not 4.
 
Originally Posted By: Al
Originally Posted By: bubbatime
Have you maxed out your annual Roth IRA contributions($5500/yr) ? Have you maxed out your 401K ($18,000/yr)?

You max out your own retirement accounts, before you even think about saving money towards someone else's education. Invest in yourself first.

This..The way the world is going...........


That's the same advice Dave Ramsey gives to parents.
 
Originally Posted By: volk06
I was advised to open a ROTH IRA for the education account in the kid's name. It is much more flexible than the 529. Fidelity has a ROTH IRA option for children that a parent or grandparent can control. I haven't looked into that much so I don't know the details or requirements.


Asked the wife about this, she said your contributions to a Roth IRA can be withdrawn for education without penalty or tax but you have to pay tax on any earnings you withdraw. Account needs to be open for 5 years before you can do this.
Guess you have the option to withdraw your contributions if needed for education or leave it until 59.5+ if it turns out you don't need to, but using earnings on the money to pay for education would incur a big tax hit. I guess I can see this approach as being a decent dual purpose failsafe, my wife says some clients will divert some money intended for education into a Roth so as to not overfund their 529s.
 
Originally Posted By: Mr Nice
Originally Posted By: Al
Originally Posted By: bubbatime
Have you maxed out your annual Roth IRA contributions($5500/yr) ? Have you maxed out your 401K ($18,000/yr)?

You max out your own retirement accounts, before you even think about saving money towards someone else's education. Invest in yourself first.

This..The way the world is going...........


That's the same advice Dave Ramsey gives to parents.


My mom made it very clear to me when I was in high school that she would only pay for me to go to Community College. I had gone to catholic school from K-12 so she wanted a break compared to what she was paying. I was fortunate that I was able to switch majors my first semester without having to spend too much money. Also was fortunate that at the time, 2001, the community college program in California was really cheap, and is still is when compared to other states. I of course picked a major that actually has job opportunities unlike most of my friends.
 
Originally Posted By: volk06
I was advised to open a ROTH IRA for the education account in the kid's name. It is much more flexible than the 529. Fidelity has a ROTH IRA option for children that a parent or grandparent can control. I haven't looked into that much so I don't know the details or requirements.

Only earned income can be contributed to a Roth IRA. Does the kid have earned income?
 
Start 529 now and just do dollar cost average in to it every month. Select an indexed fund from Vanguard or Fidelity and forget about it until your daughter's SAT results come in. You would be happy that you did that. The only decision you need to make today would be what per month amount you think can afford to put in to her account.

Of course, this is assuming you have already maxxed out your family 401K and IRA contribution.

I did that for one of my kid when he was 10 years old. I wish I had selected indexed but my fund was not bad. That account came in handy when the time came to pay tuition every semester. At least one semester was paid by only the gains (tax free!) on the account. Few more semesters were paid by our own contribution paid over 8-10 years.

You have even longer time frame. This is pretty much a no-brainer. I wish somebody had drilled that in to my head 20 years ago.
 
Originally Posted By: DrRoughneck
Originally Posted By: volk06
I was advised to open a ROTH IRA for the education account in the kid's name. It is much more flexible than the 529. Fidelity has a ROTH IRA option for children that a parent or grandparent can control. I haven't looked into that much so I don't know the details or requirements.

Only earned income can be contributed to a Roth IRA. Does the kid have earned income?


Like I said, I haven't looked into the details. Only heard that it was an option. I would assume that the child would have to be a bit older to do that option or you need get very creative and have the kid get an earned income some how. If someone is not maxing their 401K or doesnt have an IRA, the ROTH may be an option. I'm by no means a financial adviser, just some things that were discussed in passing and have no idea on how hard you'd be hit with withdrawls.
 
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