Another college savings question. College vs retirement goals

[ETBen]

I'm a late comer to retirement savings (40yo) but a high earner, so that helps. I think I should set a goal for retirement savings before I start college savings. I just don't know where that point is.

How would you go about determining that point?  I want to throw it all at retirement until I get to X point, then split my savings over prepaid tuition and retirement.

- currently max out 401k
- goal is to retire in 15 years and I should be more than fine to hit that.
- no debt
- kids each have 2 years of prepaid university saved by their father (and technically me bc we were married at the time).
- I can currently put another 24k per year into taxable investments.
- prepaid community college is about 5k per year. Prepaid university is about 11k per year.
- very little family to contribute traditional 529 option

[AccidentialMustache]

Without knowing your annual spend and present assets (401k value, other investment account values) its hard to calculate much of anything.

[ETBen]

I guess I'm looking more to know how others made the decision.  Was there a point when people say "ok retirement saving  is going well, I can afford to save for college." 

[ltt]

We've always saved in tandem since we had our first child.  We've put retirement savings at the forefront, while putting aside much smaller amounts for college expenses.  Is our retirement fully funded?.....no.  Now that college "has arrived," I wish we would have contributed more, but we're making it work.

However, it also depends on how many children you have, their ages (toddlers or teenagers), and their plans for school (community college versus university).

[Laura33]

I guess I'm looking more to know how others made the decision.  Was there a point when people say "ok retirement saving  is going well, I can afford to save for college."

Well, if you know you want to retire in 15 years, have you calculated how much you will need at that point to cover your retirement expenses?  And then how much you need to save each year to get there?  And have you done the same math for the college expenses?

It looks like you have a good bit of available savings, between the 401(k) and the extra $24K.  I would start with the amount you need to save annually for retirement on your timeframe, and then put any leftover towards college.  If you don't have enough to cover both, then you either need to cut expenses or adjust your plan.  Alternatively, if you have more than enough, I'd throw any remainder toward FIRE and possibly retire even earlier.

[Fishindude]

I think you are smart to focus on retirement savings.   That needs to come before kids secondary education, and it sounds like you've already done a decent job preparing for that by having a couple years worth saved.

[yachi]

Suppose you 'oversaved' for retirement.  Would you retire before the kids start college?  If not, then you would have an extra 18k+24k per year that you don't need in retirement accounts that you could use to pay college bills as they come in.  At 11k per kid,  you could support 3 kids at a time in college.
I tend not to save for college in college accounts because the 529 plan available to me doesn't help my tax situation much, and will reduce my children's aid in college.

[MrsPete]

From the time we were married (and we married young), we maxed out our 401K accounts, PLUS we saved ... but we did not designate our non-401K savings as "this is for retirement and this is for college".  We just saved. 

Our oldest is out of college now, and our youngest is halfway through ... and we have found paying for college to be easier than expected.  We have only dipped into savings once to pay any college expenses; other than that once, we have been able to cash-flow their expenses.  How?  We said we would only pay for 4 years at a state school, they earned some scholarships, our oldest chose a university that includes books in the tuition cost, and our youngest started at community college -- and, very importantly, they have worked towards graduating on time. 

The real keys were that we saved early and chose to live simply. 

[ETBen]

Ok this helps.  I sometimes look at the big numbers, not always incremental.  I also have an aversion to long term payment plans.  So if I can, I'd rather pay for this in the "short term" rather than saving/paying over the next 10 years. 

* yachi: in what situations does 529 not help the tax situation?  I was looking at lump sum prepaid, which it appears I can deduct up to the max yearly and divide over multiple years tax returns. 

My kids are grade school, so I have 10 years until they hit college. 

I feel like now is imperative to sock money into retirement, especially with my late start, which is why I'm hesitant to deviate funds to college savings.  But I know I have the means to do some of both. 

* Laura33 that helps and I ran the numbers a few ways, which gives me some comfort.  It looks like they also have the option to start with one plan and convert to another.  So I can plan for the CC option a year from now, while still meeting my retirement goals.  And then a year from now, if it's all still looking good, I could move those up to the University option and be done with this altogether.

[shawndoggy]

From the time we were married (and we married young), we maxed out our 401K accounts, PLUS we saved ... but we did not designate our non-401K savings as "this is for retirement and this is for college".  We just saved. 

Our oldest is out of college now, and our youngest is halfway through ... and we have found paying for college to be easier than expected.  We have only dipped into savings once to pay any college expenses; other than that once, we have been able to cash-flow their expenses.  How?  We said we would only pay for 4 years at a state school, they earned some scholarships, our oldest chose a university that includes books in the tuition cost, and our youngest started at community college -- and, very importantly, they have worked towards graduating on time. 

The real keys were that we saved early and chose to live simply.

This!  The "hard" part is the cost benefit analysis, because higher education isn't marketed that way, AT ALL.  So kids go see the recruiter who comes to their school or they get the mailing or whatever and think, "oh XYZ is going to be just perfect for me!" without regard to cost.  And the recruiters don't really want parents to think about the cost much ("we've got aid packages (LOANS!) to meet your budget").  Societal pressures on parents don't help either.  It's almost as if you do your kid a disservice if they get into a prestigious but too-expensive school if you say no.  Lets face it, if your kid is at Stanford, that prestige is a feather in your cap as a parent too. 

So being open and honest (and repetitive and redundant) with kids about cost is really important in setting expectations.  I think it's also totally reasonable that kids have "skin in the game" with some contribution financially to the outcome.  Sometimes "close enough" counts because the kid can close the gap by doing a little hustling (work, scholarship, etc).

[ETBen]

From the time we were married (and we married young), we maxed out our 401K accounts, PLUS we saved ... but we did not designate our non-401K savings as "this is for retirement and this is for college".  We just saved. 

Our oldest is out of college now, and our youngest is halfway through ... and we have found paying for college to be easier than expected.  We have only dipped into savings once to pay any college expenses; other than that once, we have been able to cash-flow their expenses.  How?  We said we would only pay for 4 years at a state school, they earned some scholarships, our oldest chose a university that includes books in the tuition cost, and our youngest started at community college -- and, very importantly, they have worked towards graduating on time. 

The real keys were that we saved early and chose to live simply.

This!  The "hard" part is the cost benefit analysis, because higher education isn't marketed that way, AT ALL.  So kids go see the recruiter who comes to their school or they get the mailing or whatever and think, "oh XYZ is going to be just perfect for me!" without regard to cost.  And the recruiters don't really want parents to think about the cost much ("we've got aid packages (LOANS!) to meet your budget").  Societal pressures on parents don't help either.  It's almost as if you do your kid a disservice if they get into a prestigious but too-expensive school if you say no.  Lets face it, if your kid is at Stanford, that prestige is a feather in your cap as a parent too. 

So being open and honest (and repetitive and redundant) with kids about cost is really important in setting expectations.  I think it's also totally reasonable that kids have "skin in the game" with some contribution financially to the outcome.  Sometimes "close enough" counts because the kid can close the gap by doing a little hustling (work, scholarship, etc).

I completely agree.  I think that if I pay tuition in full, then spending money is up to them.  That doesn't account for room and board, but nonetheless, a job is important.  I want my kids to be accountable for it in some way.  Prepaid tuition helps in that it's for state schools.  So the difference for another school will be very real. 

I think we are finally starting to shift away from this idea of school loans being "good debt."  At least I hear some of my parent peers talking about it. 

[yachi]

Ok this helps.  I sometimes look at the big numbers, not always incremental.  I also have an aversion to long term payment plans.  So if I can, I'd rather pay for this in the "short term" rather than saving/paying over the next 10 years. 

* yachi: in what situations does 529 not help the tax situation?  I was looking at lump sum prepaid, which it appears I can deduct up to the max yearly and divide over multiple years tax returns. 

My kids are grade school, so I have 10 years until they hit college. 

I feel like now is imperative to sock money into retirement, especially with my late start, which is why I'm hesitant to deviate funds to college savings.  But I know I have the means to do some of both. 

* Laura33 that helps and I ran the numbers a few ways, which gives me some comfort.  It looks like they also have the option to start with one plan and convert to another.  So I can plan for the CC option a year from now, while still meeting my retirement goals.  And then a year from now, if it's all still looking good, I could move those up to the University option and be done with this altogether.

My state's 529 plan would be a deduction to my state income, maybe my federal too, but I don't think my income is high enough for it to be a better deal over a Roth IRA.