Author Topic: Case Study: Save college money for kids or invest? Blended family  (Read 9117 times)

dad_of_four

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Hey guys, here are the details:

I've got 3 kids from a previous marriage (with us alternating weekends/holidays, etc).  Ages 15,15,10.  And we've got a new baby, less than a year.

Income:  Combined  $170K.  (me @ $60K, her at $110K)
Take home of about $9400
401k her 5%, me 3%

Expenses: $7190
Mortgage: $1980  (yeah, I know, but see below)
Utilities:  $250
Internet  $70 
Groceries: $500 including diapers and baby stuff
Car Payment $330  ( new, just bought, owe 18K at 1.9% apr)
Car Insurance: $80
Gas  $180 
Daycare $1175
Wife's cell $90
My cell  $35 (through work)
Wife's student loans $750  (about $50K left,  7 years left on a 10 year payment plan, dunno the interest)
529 contribution for teenagers 2x $250 = $500  (just started this, up to a measley $2K each)
Eating out/entertainment   $150
Child Support  $1000
Christmas account $100


Savings  $10K

Retirement embarassing, but $3K for me, $10K for her.  (We both were just scraping by a few years ago. Just started 401ks recently)

Debt $50K student loans
$18K car
Zero credit card debt!  (paid off about $6K in the last 18 months)


SO:
I have 2 kids starting college in  about 3 years. A third starting in 8 years, and a tiny one in  18 yeras. I feel that the whole system is pretty screwed (in the U.S) and I want to contribute as much as I can to avoid them graduating with crippling debt. I assume they will get some scholarship money but I know a full ride is extremely rare.

Our situation will be changing in the coming years too.
1. Less child support in 3 years, then obviously none in 8 years.
2. Probably moving to another state with a cheaper cost of living in 8-10 years. Our goal is to cash out on the riduculous property values here and pay cash in a different area, having no mortgage.
3. I'm in a fairly new career, it's a good bet that my income will be at least $70K in the next 3-5 years, maybe much more.


I know I should be putting much more in retirement. But I feel like I should do as much as I can to contribute to college as that's much more immediate. Then, as income goes up and expenes  go down, I can dramatically step up retirement. Is this misguided? I suppose I could instead save/invest in general, and later decide to use some of that for college, but I'd lose the 529 tax advantages.

Also, my employer doesn't contribute anything to my 401k, the bastard. Hers matches up to 7% I think.

(And yes, the new car is silly. Wife wanted it to feel safe for road trips to visit family. For what it's worth, we do plan on keeping it for 15+ years and being without a car payment after it's paid off. )

Thanks in advance, I'm curious to see someone else's take on this.

EDIT: Home is valued at $410K, balance is $319K.   Rate is 4.1%, no PMI.  We're in a pretty hot market, I think values will raise significantly in the coming years.

529- no state tax, fees are .035 max.



« Last Edit: January 29, 2015, 10:37:53 AM by dad_of_four »

bugbaby

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #1 on: January 29, 2015, 10:16:29 AM »
What's the home value, mortgage interest rate and balance, property taxes etc?

What's your state tax or the 529 actual tax benefits?

MayDay

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #2 on: January 29, 2015, 10:25:48 AM »
The general advice is to save for retirement first.  To me that does not mean you need to get to the 50%+ that many advise on this site.  But you sure as heck better be contributing 10% to retirement before you worry about college!

Just throwing out my first impression, I would up both your 401K contributions to 10% (or for you, with no match, you could do an IRA- look at what the 401K fees are).  Then I would consider what is left to divide between college and retirement.  I would plan to contribute whatever the reduction in CS is directly to college costs when the time comes.  So say 300$ a month per kid, plus whatever ends up in the 529.  If their mom can kick in the same they will be much better off than a lot of kids.

Another option might be to offer to match whatever they can save from summer jobs. 

Looking at your budget, nothing is too crazy except the new car (please at least tell us it is a reasonable car and not a 6 year loan!) and her cell phone. 

GizmoTX

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #3 on: January 29, 2015, 10:28:29 AM »
Invest. College loans exist, retirement loans do not. It's time your older kids start considering their plans after high school. It's not all up to you, but they shouldn't be surprised either. Coaching in figuring out career choices & options to get there is invaluable.

dad_of_four

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #4 on: January 29, 2015, 10:40:13 AM »
What's the home value, mortgage interest rate and balance, property taxes etc?

What's your state tax or the 529 actual tax benefits?

I updated post to show, thanks.

dad_of_four

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #5 on: January 29, 2015, 10:43:05 AM »

Looking at your budget, nothing is too crazy except the new car (please at least tell us it is a reasonable car and not a 6 year loan!) and her cell phone.

As reasonable as a new car goes.  :)  It's got good mpg and it's a 5 year loan. 35% down payment. We plan on driving it for the next 15+ years.

Cpa Cat

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #6 on: January 29, 2015, 10:50:57 AM »
You don't have a lot of money saved and you miss out on a state tax deduction for the 529 anyway. I think saving for college education should be your last priority (behind your own student debt, retirement and emergency funds).

I often think that the best way to plan for college expenses for parents like you is to anticipate "child support" continuing through college - just divert the child support payment to college costs. Atfer your kids graduate, if you have money to spare, you can make them gifts toward their loan repayment.

But right now - you just don't have the money to kick around.

CommonCents

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #7 on: January 29, 2015, 11:08:01 AM »
I'll add that you'll want to be upfront with your kids in terms of what they can/can't expect in terms of support during college (e.g. maybe you won't be paying for their tuition, but they can live at home at take classes at local universities).

At the very least, she should be putting in money to the 401k up to the max.  But see if you can't stretch and put more in.

Agree with Cpa Cat that you may want to think about the child support as just redirecting to the college fund if that's a priority to you (over your retirement, but I think you should start reprioritizing your retirement).

Look into switching your wife's cell - $90 is really high.

Gas is also really high!  Try to do fewer trips, combine trips, etc.

Maybe cut back a bit on the Christmas fund.  $1200 is a large chunk of change even if it's covering presents for 3 kids (cut way back on presents to each other, and a baby doesn't really need or notice presents).  Buy presents on sale throughout the year.

Find out how much interest your wife's student loan is.  Don't forget you'll have that $750 freed up just about when your 3rd kid hits college. 

Similarly, you'll have the daycare money free about when the oldest two are hitting college.

Hopefully your oldest two will get some financial aid as they are going through at the same time.  Look into scholarships for all of the kids.  (Are the oldest two twins?  Look into twin scholarships.)

How does your wife feel about college contributions to your older kids?

Scandium

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #8 on: January 29, 2015, 11:10:25 AM »
Not sure it was you're wife's (or your) intended meaning, but I love this line:
"And yes, the new car is silly. Wife wanted it to feel safe for road trips to visit family."
So there are no safe used cars? And none for less than 20 grand?

Agree with everyone else; safe for retirement first. Kids can get loans for school. And if you make sure they don't get a pointless education and a massive loan it's shouldn't be "crippling" anyway.

And if you do move at some point your best financial decision would be to not pay cash for a house. Rather take that home equity and invest, or if you have to; live off the cash if that allow you to max both 401ks. Investments > low interest, tax deductible loans.

whitewaterchica

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #9 on: January 29, 2015, 11:17:30 AM »
Regarding child support and college, what does your child support agreement stipulate? What does your state require? Here in NJ divorced parents are expected to contribute to college costs and child support continues through college, unless the child forgoes college in favor of another path such as joining the military or other full-time employment that takes the child away from home.

"There is no fixed age in New Jersey when support stops. Once your child turns 18 and/or becomes financially independent, either parent must file papers with the court asking that the order be terminated or adjusted. This is known as “emancipation.” Based on the facts, the court will decide if the child still needs support. Generally, the court presumes that all children under 18 need support from their parents. In some cases, support may continue through college or longer. Support may terminate automatically if your current order specifies a date or age when support is expected to stop."
« Last Edit: January 29, 2015, 11:22:00 AM by whitewaterchica »

MetalCap

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #10 on: January 29, 2015, 11:47:09 AM »
IRA $ and Roth IRA earnings can be used to pay for college without the 10% penalty, just your tax rate.  Roth IRA contributions can be withdrawn anytime.  Any money you "save" for college, I suggest using the savings to earn for oyur retirement.

Also remember, kids can make it through school with loans a lot easier than they can support you 2 for your entire retirement.

Before any of that tackle those debts!  Car then student loans (since the interest is deductible to a point)

dad_of_four

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #11 on: January 29, 2015, 11:55:26 AM »
All good points, thank you.

To answer a few questions:

I'm probably overestimating gas. Wife's commute is like 2 miles. I rack up some miles picking up and dropping kids off at various places (Their mom lives in another town). Might be closer to $120 a month.

College is not addressed in the child support agreement. I think viewing it as continuing support is a good approach, though.

My wife is very cool about me contributing to college. But, in a blended family/second marriage situation, sometimes money is a touchy subject. And let's face it, she's making almost twice what I am and came into the marriage without any little lovely liabilities. :)  Our approach has been to keep things somewhat separate (I'll pay this bill, you pay that), so one doesn't have to question the other about spending on certain things.  I feel like this has minimized conflict, and we're both pretty frugal, so things have worked well.   But I'm really beginning to see that ultimately, they're not really separate.  Both my child support and her loans keep us from saving/investing to some extent because they're expenses to the household. Both my and her incomes and decisions affect the other, especially now that we have the baby.  I think we need to have another sit down about the budget.

And really, I want to do this for my kids so much. I expect them to get scholarships, to work part time like I did, to understand how their decisions will affect there future. But it's hugely important to me to help them out along the way. Tuition is disgustingly high now and I want to mititgate that. But maybe it's better to contribute monthly  as they attend than to save up a lot now in lieu of upping retirement.  You get used to sacrificing for your kids, I guess. But I'm not that young anymore, I gotta think of my future too. :/


thedayisbrave

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #12 on: January 29, 2015, 12:05:01 PM »
Coming from the "kid" perspective (well maybe not anymore, but I was a few years ago) - take care of yourself first.  My parents had savings set aside for me which helped pay for college but I still worked every weekend to stretch that money even further.  I wasn't very keen on "the college experience" so I had fun on random nights I had off but worked my butt off during the week finishing schoolwork so I could work most of the weekend.  I don't regret a second of it!

I would say just be upfront with them and tell them not to expect any help.  That way, if you can help them a little, that's just an added bonus.  See if they can take the first 2 years of courses at a community college (much cheaper, and now potentially free - thanks Obama) then transfer to a 4 year college.  Working during summers is easy as long as you can find a job - so I'd encourage getting a job junior/senior year of high school.  That's what I did, and I was always welcomed back during the summer and given any hours that I wanted because I also worked during the school year.  I had TONS of friends who'd ask me to get them a job where I worked for just the summer but my place didn't do that, and I know they sometimes had a rough time of it.

Living at home is a great money saver too. 

There are ways to save during college which means minimal loans being taken out.  It can be done!

Terrestrial

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #13 on: January 29, 2015, 12:15:26 PM »
Very noble to want to help your kids out and avoid college debt, I feel the same way about mine.  However, also remember that they would probably rather owe some school loans than have to support dad in his old age because he didn't save for retirement.

You don't list your age but I'm going to guess by having 15 year olds you're at least in your late 30's/early 40's... I'm also going to assume that having a newborn and no real retirement savings at this point that you don't view early retirement in the cards for you, which is ok.  The good news is you still probably  have a solid 25 years left to save so you don't have to kill yourself with a crazy high savings rate, if you are OK with working into your later 60's to 'normal' retirement age.  There should be room for both modest contributions to college and adequate retirement savings.

There are definitely ways to cut college costs too.  Living at home and going to CC for the first 2 years is HUGE for affordability.  Be honest with your kids that you'd love to help but that they need to be open to making smart choices like that as well. 

dad_of_four

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #14 on: January 29, 2015, 12:16:20 PM »


And if you do move at some point your best financial decision would be to not pay cash for a house. Rather take that home equity and invest, or if you have to; live off the cash if that allow you to max both 401ks. Investments > low interest, tax deductible loans.


That's an interesting point. I hadn't  thought of if like that.  It seems counterintuitive to keep debt around and invest instead. But we could use the tax deduction in our bracket.

So, for example, we net $200K profit when we sell, move to another market where we can get a $200K house: You think it'd be better to just put down $50K, mortgage the other $150K (I guess for 15 years I don't want a mortgage 30 years from then), invest the $150K? Wouldn't those investments get taxed?  Tax plus the interest on the mortgage would add up to..something.


CommonCents

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #15 on: January 29, 2015, 12:25:55 PM »


And if you do move at some point your best financial decision would be to not pay cash for a house. Rather take that home equity and invest, or if you have to; live off the cash if that allow you to max both 401ks. Investments > low interest, tax deductible loans.


That's an interesting point. I hadn't  thought of if like that.  It seems counterintuitive to keep debt around and invest instead. But we could use the tax deduction in our bracket.

So, for example, we net $200K profit when we sell, move to another market where we can get a $200K house: You think it'd be better to just put down $50K, mortgage the other $150K (I guess for 15 years I don't want a mortgage 30 years from then), invest the $150K? Wouldn't those investments get taxed?  Tax plus the interest on the mortgage would add up to..something.

Yes, they'll get taxed, but you'd get the mortgage deduction at the same time.  The idea is that your mortgage (minus deductions) is likely smaller than what you'd make on your investments over time.  e.g. mortgage 4%.  Assume you pay 25% in taxes, so mortgage deduction gets you down to 3%.  Investments on average in the stock market make 7%/year.  Your mortgage is slowly losing ground to inflation (same as your investments, which is why people figure you'll have 4% safe withdrawal rate).

rmendpara

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #16 on: January 29, 2015, 12:31:35 PM »
I'll just add that your kids would rather have self-sufficient parents in old age rather than assistance in college... assuming there was a choice between the two.

You can always help them out if you have a surplus, but if you have a shortage and they are in a financial situation like your's today, who will you turn to for help?

Not trying to be mean at all, just blunt. Help your kids make wise decisions and challenge them to think critically about college as an investment rather than a 4 yr vacation.

I would strongly encourage you to push them to work part time or even take a semester/year off to work and pay most of their own way. Doing this will help in several ways:
1) They will HATE working minimum/low wage and start to view college as a serious opportunity not to be f&cked with.
2) They will see exactly how quickly their earned money goes out the door to just pay for rent/food/tuition

These lessons will pay them more than any amount of money you could offer.

Otherwise, solid progress. Good to get rid of credit card debt. Best wishes with the newborn

GizmoTX

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #17 on: January 29, 2015, 12:44:34 PM »
See if your high school kids can find summer jobs in an industry or function related to something they think they might want to major in. Not only do they earn money, but they get to see & talk to people actually doing it. It may be exactly what they want or they may decide it looks more appealing on the outside. If a job is not possible, some HS clubs or organizations allow job shadowing or career exploration. A bad major is everyone's worst nightmare, & do-overs are expensive.

DS was able to work HS summers at a local computer company, where he was exposed to different engineering functions. He's now a university junior with a dual major in electrical engineering & math, & loves it, but we never expected this while he was younger. We are so glad he found out what he did and did not want to do at a relatively young age. Now he wants to take advantage of his school's program to add the MSEE in just one year, but is still exploring options within the degree & career path.

My parents & grandparents always urged me to attend college, but my parents never let me know until my junior year that there was NO money to send me. I was always very frugal but would have started working & saving even earlier if I'd
known. I was able to put myself through college, & these days it would take student loans, but having skin in the game makes it more valued to the student.

mginwa

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #18 on: January 29, 2015, 12:50:33 PM »
Please do your research about how colleges calculate financial aid for your kids. I was looking at this site earlier today after reading about all the stuff being discussed about 529 plans: http://www.savingforcollege.com/financial_aid_basics/financial_aid_and_your_savings.php

Maybe the three most important things at stake here are your future, your kids' futures, and your relationships with your kids. Handling this poorly can screw all three of those up. Understand that now that you are remarried, the incomes from both bio parents and all step parents are going to be considered fair game for financial aid. Understand what kind of assets count and what kind of assets don't count. If you take money out of your house and put it in a regular investment account, that money is going to be counted as available for college. Understand that financial aid packages might include loans YOU are expected to take out, not the kids, and the kids may not even be eligible to take out sufficient loans on their own unless you can demonstrate something wrong with your own credit (which is what happened to me and the only way I was able to pay for college.)

You can't really make a decision without educating yourself about how all these things work, but you also need to be honest with your kids about whatever level of support you can provide. If you aren't, you could seriously screw up your kids' options. My parents assumed they weren't going to be expected to pay anything and were completely wrong. They did not tell me they weren't going to help me until I had an acceptance letter in hand from the Ivy League school of my dreams. They also didn't realize their new spouses were going to count. It was a shitshow, and it was very destructive for my future and for my relationship with them, yet it was completely avoidable if we had put together an actual plan instead of making terrible assumptions.

You're showing how much you care already by asking questions and doing research. Good luck!

theonethatgotaway

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #19 on: January 29, 2015, 12:55:47 PM »
First ask your kids why they are going to college.

Start from there.

Its only super expensive if they make it that way and you dibtbneed to subsidize. They should be saving now too.

RFAAOATB

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #20 on: January 29, 2015, 03:37:18 PM »
If Mom and Dad can not afford college, Uncle Sam can.  Family PT in the morning can prepare them for either an ROTC scholarship if you're lucky or some sweet enlistment bonus.  After a stint in the military your kids can be college ready with improved life experience and a leg up from not having student loans.  They can even take night classes part time with tuition assistance to get their bachelors in a few more years than standard and save the GI Bill for graduate school.   Airborne!

caliq

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #21 on: January 29, 2015, 04:02:38 PM »
Please do your research about how colleges calculate financial aid for your kids. I was looking at this site earlier today after reading about all the stuff being discussed about 529 plans: http://www.savingforcollege.com/financial_aid_basics/financial_aid_and_your_savings.php

Maybe the three most important things at stake here are your future, your kids' futures, and your relationships with your kids. Handling this poorly can screw all three of those up. Understand that now that you are remarried, the incomes from both bio parents and all step parents are going to be considered fair game for financial aid. Understand what kind of assets count and what kind of assets don't count. If you take money out of your house and put it in a regular investment account, that money is going to be counted as available for college. Understand that financial aid packages might include loans YOU are expected to take out, not the kids, and the kids may not even be eligible to take out sufficient loans on their own unless you can demonstrate something wrong with your own credit (which is what happened to me and the only way I was able to pay for college.)

You can't really make a decision without educating yourself about how all these things work, but you also need to be honest with your kids about whatever level of support you can provide. If you aren't, you could seriously screw up your kids' options. My parents assumed they weren't going to be expected to pay anything and were completely wrong. They did not tell me they weren't going to help me until I had an acceptance letter in hand from the Ivy League school of my dreams. They also didn't realize their new spouses were going to count. It was a shitshow, and it was very destructive for my future and for my relationship with them, yet it was completely avoidable if we had put together an actual plan instead of making terrible assumptions.

You're showing how much you care already by asking questions and doing research. Good luck!

+10000000

As another "kid" who was always expected to go to college and always told there would be money for it, only to find out there wasn't -- please be as educated as you can possibly be on the rules surrounding FAFSA, CSS, etc.  And be up front and open with your children about the realities of the situation. 

greenmimama

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #22 on: January 29, 2015, 05:51:06 PM »
I didn't read all the other responses, but just a thought here, you could use the child support that you will no longer owe and give promise that to your kids monthly until the age you deem appropriate, like 22 when they would be done with a bachelors, to go towards school, then you know it is something you can afford.

Save for the 10 yo and baby, you won't have to put in nearly as much since you have time working for you.

Milizard

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #23 on: January 29, 2015, 07:40:50 PM »
I would cut the contribution way down, but not eliminate it.  Maybe $25-50/month for each 15 year old.  Save the rest in your 401k.  Let them know you saved some for them, but it's a very small amount.  Something is better than nothing where their feelings are concerned.  You're going to run into similar problems with the 10 year old.  You will have 1 year to save for that one if the first 2 graduate on time.

bugbaby

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #24 on: January 29, 2015, 08:01:27 PM »
+++1
Max both 401k's savings rather than college.  The guaranteed Fed tax benefits on 401k are a whole lot more , vs possible fed tax break on only 3 years of *earnings* on the 529, especially given 1) *no* state tax benefits to the 529, and 2) risk of loss over 3yrs in 529 hence no benefits vs long term (25 yrs+) growth in the 401k.
« Last Edit: January 29, 2015, 08:50:13 PM by babybug »

MrsPete

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #25 on: January 30, 2015, 06:21:55 AM »
You've received some good answers already, and mine won't stray far from the pack:

First, I think you already realize the truth:  You can't do everything you want.  Your finances will not allow you to pay your mortgage, drive the new family car, save for retirement and provide college on a silver platter for your kids.  The math doesn't support ALL these choices. 

The most realistic scenerio is that you're going to be able to provide PART of your kids' college expenses.  Where does their mother play into this?  Is she contributing too?  I suggest you tell them NOW what you can do -- and then stick to it.  If you can pay tuition, great.  If you can provide X amount towards their total expenses, great.  But tell them so they can make their plans surrounding that help. 

As some one else said, provide them with support and guidance, and help them see ALL their options -- high school kids typically see 4-year schools and dorms vs . . . nothing.  They see that common path, and they fail to notice all the other choices. 

Talk to them about the reality of $750 loans.  Encourage them to make choices that will help them avoid that expensive choice.  Loans are far from inevitable. 

One last note:  Whatever you do for one, do for all.  It's an odd thing, but I see more than a few families who bend over backwards to get Kid #1 into THE SCHOOL, to set him up in a dorm, to borrow for his college expenses . . . and then for Kid #2 they realize they can't afford to keep doing this, so he starts out with a "downsized version" of what his brother got.  Great way to encourage sibling rivalry.  START with the downsized version. 


teen persuasion

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #26 on: January 30, 2015, 07:41:20 AM »
Monthly gross : $14,1667
Monthly take home : $9,400
Monthly expenses : $7,190

Those are some big gaps between categories there, and the underlying expenses are invisible if you only focus on your list of expenses in the first post.  Where does the difference between take home and expenses go?  Treat payroll deductions as expenses, too.  Break them out and look for savings there.  You appear to have another $2200 per month to divert to your 401Ks.  That should drop your federal tax bill.  Divert that savings to your 401k, too.  Shift most or all of the college savings to your 401k.  It is better to front load your retirement savings now, to get the power of time and compounding to work for you.  There is not enough time for college saving for your teens to compound much.  If you need to,  you can pull back on retirement contributions, somewhat, while cash-flowing college, and then return to higher makeup retirement contributions afterwards, if you have a base growing.

My DH was only contributing 5% to his 401k when they decided to cut the match.  He wanted to stop contributing, but I looked at his health insurance options, chose a slightly cheaper option, and tweaked his withholdings so that he could double his 401k contribution to 10% with little change in take home.  A little raise, and tweaked withholdings (due to lowered AGI from 401k contributions), and he doubled it again, to 20%.  I kept going like this, finding savings, things got paid off, and I had him up the percentage a bit more, until he was maxing it.

You can do this, too.  The tax savings are much greater at your income levels than at ours.  We were maxing DH's 401k and two Roth IRAs on less than $50k income, with 5 kids.

CommonCents

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #27 on: January 30, 2015, 08:40:34 AM »
One last note:  Whatever you do for one, do for all.  It's an odd thing, but I see more than a few families who bend over backwards to get Kid #1 into THE SCHOOL, to set him up in a dorm, to borrow for his college expenses . . . and then for Kid #2 they realize they can't afford to keep doing this, so he starts out with a "downsized version" of what his brother got.  Great way to encourage sibling rivalry.  START with the downsized version.

This.  The other thing that happens is the parents save nothing for kid 1, but then realize they need to save and do so for the later kids.  I have a few friends that as the older kid got less than the younger.  (My friend that went through Stanford in 3 years and worked part-time in order to save money, who decided to stop feeling guilty about what her parents sacrificed for her when her younger sister hit 6 years at a California university, with no degree in sight, all 100% funded by the parents.)

My dad used to joke that colleges are set up to spend your savings on kid 1, take out loans with kid 2, and get a free ride because you are now poor with kid 3.  (I was kid 2 so I was less amused by this.)  Give equally to all kids, even if it means going smaller now and making some gifts later to their loans if you can.  (Obviously, it will be trickier with kid #4, in terms how you cover college for the baby versus the other 3.)

[/quote]
First, I think you already realize the truth:  You can't do everything you want.  Your finances will not allow you to pay your mortgage, drive the new family car, save for retirement and provide college on a silver platter for your kids.  The math doesn't support ALL these choices. 

And this. 

Ready2Go

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #28 on: January 30, 2015, 08:46:09 AM »
One last note:  Whatever you do for one, do for all.  It's an odd thing, but I see more than a few families who bend over backwards to get Kid #1 into THE SCHOOL, to set him up in a dorm, to borrow for his college expenses . . . and then for Kid #2 they realize they can't afford to keep doing this, so he starts out with a "downsized version" of what his brother got.  Great way to encourage sibling rivalry.  START with the downsized version.

This.  The other thing that happens is the parents save nothing for kid 1, but then realize they need to save and do so for the later kids.  I have a few friends that as the older kid got less than the younger.  (My friend that went through Stanford in 3 years and worked part-time in order to save money, who decided to stop feeling guilty about what her parents sacrificed for her when her younger sister hit 6 years at a California university, with no degree in sight, all 100% funded by the parents.)

My dad used to joke that colleges are set up to spend your savings on kid 1, take out loans with kid 2, and get a free ride because you are now poor with kid 3.  (I was kid 2 so I was less amused by this.)  Give equally to all kids, even if it means going smaller now and making some gifts later to their loans if you can.  (Obviously, it will be trickier with kid #4, in terms how you cover college for the baby versus the other 3.)


++  My husband is 54 and still resents the extra help his sister got for college. 

SunshineGirl

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #29 on: January 30, 2015, 08:54:11 AM »
It's hard with teens because they start getting all sorts of "you're so awesome, we'd love you to come here!" brochures and emails from colleges as soon as they take their PSATs, without mentioning the insane price tags. And they AREN'T getting these brochures from their state colleges, which is the most reasonable option after getting as much done at a community college as possible.

Here is what I've learned recently:

Your kids can take CLEP tests anytime for college credit. These are supposedly easier than AP tests, and most college list on their websites what scores they accept for credit. My plan with my kids, who take AP classes, is that same week they take their AP tests, to have them take CLEP tests. There are websites/companies that can help them prepare, for about $20-25 month and they guarantee a decent score or your money back. I've told both my kids that taking these tests isn't optional, and it will allow them to take more interesting classes in college instead of intro classes they already basically took in high school. You know your score when you leave the test, and you can re-take it numerous times if necessary.

I'm also planting the idea that they can take time off before college and work, or they can take time off part-way through. If they want to go to out-of-state colleges, they'll need to move there and establish residency to get in-state tuition. We've told them we can help to an extent, but it won't exceed X amount, and they aren't "allowed" to take out loans for college (although apparently they can take out federal loans without parental permission!?!?!)

Our state universities also list the courses they guarantee to accept from the local community colleges, and we're going to sit both our kids down before this summer and explain that they should be taking these courses throughout high school (summers) and after high school before going to a university.

It's really all about expectations. They get very dazzled and flattered by all the interest from colleges, but don't see they're basically sales pitches.

But this is all about me, isn't it? :) Sorry. I think it applies in your case, too, right?

GardenFun

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #30 on: January 30, 2015, 09:05:42 AM »
Here's our household order:
- 401k up to the company match - both spouses
- Any debt with an interest payment at 5% or higher
- Roth IRA's - both spouses
- Max out rest of 401k's - both spouses

In your case:
- Wife 401k at 7%
- Don't recall any high interest debt so skip this one
- Roth IRA's for both
- Max out remaining 401k's

College savings can come from many of the sources mentioned below, but here's some questions first: 
- Do your 15 year old kids have jobs now?  If not, make them get a minimum-wage job.  It does wonders for career motivation.
- If AP classes are offered in high school, are they going to take them, thus potentially earning college credits? 
- Can they take some college classes in the summer?
- Can they skip part of their senior year classes and supplement with college classes?  Some high schools pay for these classes.
- Thoughts on ROTC?
- Thoughts on skilled trades?  The ability to start one's own business 3-5 years after a 2-year trade school is quite appealing.

The ability to get to an end result in a non-traditional manner is one of the beauties of this forum, and a life skill most people seriously lack. 

GizmoTX

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #31 on: January 30, 2015, 09:18:20 AM »
See if your state has Early College High School. These are typically located within a community college & allow a high school student to earn up to 60 hours (associate degree) of college credit at the same time as their high school diploma. Obviously this foregoes the typical high school experience but that can be a good thing for a studious teen.
http://www.edtx.org/college-ready-standards-and-practices/early-college-high-schools

hunniebun

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #32 on: January 30, 2015, 09:24:22 AM »
I think the hype around saving for your children's post secondary education has gotten out of hand these days!  As many previous posters have suggested I think taking care of your own needs first is more important.  I don't know where the idea came from that parents should pay for their kids education. I did a four year degree 15 years ago and it never entered my mind that my parents should pay for it and they would have laughed me out of the house if I had suggested it!   Having said that, if there is money in your budget to spare if and when they chose a post secondary tract, you might consider paying for some things as you have the money available (like text books or whatever). I guess what I am saying is it doesn't have to be all or nothing. 

teen persuasion

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #33 on: January 30, 2015, 09:25:44 AM »
One last note:  Whatever you do for one, do for all.  It's an odd thing, but I see more than a few families who bend over backwards to get Kid #1 into THE SCHOOL, to set him up in a dorm, to borrow for his college expenses . . . and then for Kid #2 they realize they can't afford to keep doing this, so he starts out with a "downsized version" of what his brother got.  Great way to encourage sibling rivalry.  START with the downsized version.

This.  The other thing that happens is the parents save nothing for kid 1, but then realize they need to save and do so for the later kids.  I have a few friends that as the older kid got less than the younger.  (My friend that went through Stanford in 3 years and worked part-time in order to save money, who decided to stop feeling guilty about what her parents sacrificed for her when her younger sister hit 6 years at a California university, with no degree in sight, all 100% funded by the parents.)

My dad used to joke that colleges are set up to spend your savings on kid 1, take out loans with kid 2, and get a free ride because you are now poor with kid 3.  (I was kid 2 so I was less amused by this.)  Give equally to all kids, even if it means going smaller now and making some gifts later to their loans if you can.  (Obviously, it will be trickier with kid #4, in terms how you cover college for the baby versus the other 3.)

First, I think you already realize the truth:  You can't do everything you want.  Your finances will not allow you to pay your mortgage, drive the new family car, save for retirement and provide college on a silver platter for your kids.  The math doesn't support ALL these choices. 

And this.
[/quote]

It can work the other way, too, though.  When DD1 started college, she received lots of aid due to family size relative to income.  By the time DS5 gets to college age, all his sibs will be out of the house and on their own, so we will be filling the FAFSA as a family size of 3 for him rather than 7 previously.  The income protection amount is quite a bit different there.  Hopefully we will be FIRE by then, or at least DH can RE.  I'm planning and keeping my eyes on those FAFSA formulas.

CommonCents

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #34 on: January 30, 2015, 10:20:36 AM »
One last note:  Whatever you do for one, do for all.  It's an odd thing, but I see more than a few families who bend over backwards to get Kid #1 into THE SCHOOL, to set him up in a dorm, to borrow for his college expenses . . . and then for Kid #2 they realize they can't afford to keep doing this, so he starts out with a "downsized version" of what his brother got.  Great way to encourage sibling rivalry.  START with the downsized version.

This.  The other thing that happens is the parents save nothing for kid 1, but then realize they need to save and do so for the later kids.  I have a few friends that as the older kid got less than the younger.  (My friend that went through Stanford in 3 years and worked part-time in order to save money, who decided to stop feeling guilty about what her parents sacrificed for her when her younger sister hit 6 years at a California university, with no degree in sight, all 100% funded by the parents.)

My dad used to joke that colleges are set up to spend your savings on kid 1, take out loans with kid 2, and get a free ride because you are now poor with kid 3.  (I was kid 2 so I was less amused by this.)  Give equally to all kids, even if it means going smaller now and making some gifts later to their loans if you can.  (Obviously, it will be trickier with kid #4, in terms how you cover college for the baby versus the other 3.)

First, I think you already realize the truth:  You can't do everything you want.  Your finances will not allow you to pay your mortgage, drive the new family car, save for retirement and provide college on a silver platter for your kids.  The math doesn't support ALL these choices. 

And this.

It can work the other way, too, though.  When DD1 started college, she received lots of aid due to family size relative to income.  By the time DS5 gets to college age, all his sibs will be out of the house and on their own, so we will be filling the FAFSA as a family size of 3 for him rather than 7 previously.  The income protection amount is quite a bit different there.  Hopefully we will be FIRE by then, or at least DH can RE.  I'm planning and keeping my eyes on those FAFSA formulas.

Yep.  I lost a $9k need based scholarship when my older sister (by 2 years) graduated.  However, I only got it apparently because we overlapped at college.  They didn't care that my brother *would* be going to college in the future, they only cared about what was happening that year.  So maybe try to get your twins to delay by a year and work, and get your 10 yo to graduate high school a year early.  ;)

One thing about the AP classes people are recommending - be careful, because not all colleges grant "useful" credit for them.  For example, I took 4 AP classes (Euro History, US History, Bio and English), and my senior year I took 2 year long community college courses (so essentially 4 semester classes, 2 of Calculus and 2 of Poly Sci), and 4 quarters at UCSD through an early honors admission program (sociology, a logic course, psych and I forget the 4th).

I attended an Ivy League college.  My college gave some unspecified credit that didn't count for meeting core requirements or for meeting major requirements.  My AP courses gave me virtually nothing: English would have let me pass out of one of the two first year English class requirements, but my 790 verbal SAT score did that as well, and I got an "unspecified bio credit" which didn't get me out taking a science course.  My psych was the only really useful one - it let me pass out of psych 1 (psych was one of my majors - but I didn't know at the time going in it would be).  Otherwise I got unspecified credits that didn't count for the core requirements, and in trying meet core requirements and my double major, I ended up having to spend 4 years at college anyways.  If I had been very careful from day 1 and knew I'd be double majoring then, or skipped my term abroad, I could have shaved a term off.

So just know that college credit isn't quite the panacea and depends on the individual college.

waffle

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #35 on: January 30, 2015, 11:51:07 AM »
Personally I would focus on investing for retirement. Let the kids work and save as much as they can both now and while they go to college. Then let them take out all the subsidized federal loans to cover what their savings and wages don't. Doing this allows your investments to grow for an extra 4 years. Once they are all graduated then you can help them pay off their loans while they are still in the grace period and no interest is accumulating.

MrsPete

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #36 on: January 30, 2015, 12:38:24 PM »
Personally I would focus on investing for retirement. Let the kids work and save as much as they can both now and while they go to college. Then let them take out all the subsidized federal loans to cover what their savings and wages don't. Doing this allows your investments to grow for an extra 4 years. Once they are all graduated then you can help them pay off their loans while they are still in the grace period and no interest is accumulating.
I know a couple families who've taken this approach:  You borrow for college.  If you graduate (or, some families say, if you graduate on time), we will repay the loans for you.  If you stop mid-way, the loans are your own responsibility.

I don't think that's a bad plan, especially if your student is a bit . . . wishy-washy. 

However, if you're just plain not prepared to pay, four more years probably won't help.  To put it bluntly, you've known for 18 years that this child would reach college age.  If you haven't managed to save in all those years, four more probably won't make the difference. 


I think it's fairly common for parents to say, "We'll pay tuition.  You pay books.  You can live at home." 


We're on the semester plan in my house:  I gladly paid for the first semester . . . and then when good grades appeared and I could see progress towards graduation, I gladly paid for the second semester.  If at any point good grades DO NOT APPEAR, I stop paying.  Regardless, I will only pay for eight semesters (okay, I did pay for one summer school because it was a mandatory thing for nursing majors between sophomore and junior year). 


Lots of different "plans" will work, but I think the keys to success are TELLING THE KIDS exactly what you will pay -- don't you be the wishy-washy one.  And then sticking to it. 
« Last Edit: January 30, 2015, 12:40:43 PM by MrsPete »

frugaldrummer

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Re: Case Study: Save college money for kids or invest? Blended family
« Reply #37 on: January 30, 2015, 01:06:42 PM »
Obviously it matters what their mother's situation and take on college is as well.

If your ex has no money and encourages them to go to an expensive school and take out loans - you're going to have ap roblem.

If she's wealthy and encourages them to go to a $45k a year private college - also a problem for you, who will be expected to provide half.

If she's reasonable and will support you in a "live at home and go to community college or state school for the first two years" approach - then you may find pay-as-you-go college to be doable.