Author Topic: CDs for college savings/earnings within 2-7 years  (Read 679 times)

gneiss

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CDs for college savings/earnings within 2-7 years
« on: December 02, 2017, 11:03:14 AM »
Humbly, I'd love some smart-checking (is that a word or phrase?  haha) on my 'plan' of putting $70k of TIRA college funds currently in cash, into various laddered CDs for use in 2-7 years.  What am I missing ?  reasonable plan ? 

Background: 
Son is HS junior, age 17, plans to attend college fall of 2019, in roughly 1.5 to 2 yrs.
Me, wife and mom, age 55, works 1/2 time at University year 4 of 5-year grant, minimal income as it's a transition job from stressful, travel-heavy consulting career to the next chapter, with retired husband and son off to college. 
Husband/dad, retired, age 64.  Pension/Annuity income. 
Our 2016 AGI = $60,000 from above sources & inherited rental  income (minimal). 

We (finally) have $70k in cash in husband's TIRA account, knowing husband would be over 65 when son needed funds for college.  (older parents, obviously).  Some of these cash funds could be needed as soon as 2 years, with remainder being needed the 3 years post, and likely 2 years beyond for graduate school, so out 7-8 years. 
Should I ladder CDs ?  other choices I should consider ?  Obviously not wanting to invest in the market.   

Son's academics strong - scored top 99% in ACT he took in the fall.  We will very likely NOT get need-based aid, due to value of inherited rental, and no debt on our home.  Merit aid is a likely bet, depending on where he chooses, but will not amount to a lot, we think.  All these unknowns will be clear next year in the spring when he hears back from college's he's applied to.  Will apply to some private reach schools just to see the real numbers on aid and our out-of-pocket cost, as well as State University Honor's Colleges.  His interest is science/engineering.  Obviously we can only help our son with college, not fund the entire thing....and will advise he choses NOT to go far in debt for his education.  Thankfully, he's of the frugal bent, like his parents.  haha.

What am I not considering ?  Any thoughts suggestions appreciated -- !  Thanks so much for your time and expertise. 

 
         



secondcor521

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Re: CDs for college savings/earnings within 2-7 years
« Reply #1 on: December 02, 2017, 11:51:21 AM »
A couple of thoughts:

You didn't say exactly, but since you're talking about using your husband's IRA to pay for your son's college...The general advice is to take care of your retirement first and your kids' college after that.  So make sure you have enough to support yourself when you retire before spending your retirement on his college.

Second, depending on the school you might get some aid.  FAFSA excludes your home and your retirement accounts from your assets.  Also, there is an asset set aside which is based on the older parent's age, so since your husband will be 65, that could be some money.  What I'd suggest is filling out a mock FAFSA now and see what your EFC will be.

Overall it is a reasonable plan to shift money that you will need in the next few years into less risky assets.  People differ quite a bit in the specifics though.  CD's are a decent choice; some sort of short term high quality bond fund might be good for the 7-8 year money.  Right now I am putting any expenses in the next 3 years in bond funds and anything beyond that in stocks for my kids college - most people would say I am too aggressive.  Anyway, I'd suggest picking a plan and putting the next X years in CD's and then anything beyond that in bonds (if you're comfortable and understand the risks).  Then as each year goes by, move a year of bonds into CD's.

Sit down with your son and explain in concrete terms what you will pay for and what you won't.  "We'll pay $5000 per semester at any in-state school" or "We'll pay the equivalent of <in-state-engineering school> tuition and books where ever you choose to go but the rest is on you" or whatever.  As long as it's clear and consistent and you start now, your son will be able to deal with whatever his situation ends up being.

If you can, I personally think it is smart to narrow down which degrees he is interested in before he starts.  It can get pricey to be at college one semester thinking you want to be a psychology major, then one semester as a mechanical engineer, then one semester as an international business student, then...  Pretty soon you can have a seventh-year-senior with 198 credit hours who is still a year away from graduation.  One of the ways to save money on college is to go to college for as short a time as possible.  Get in, get it done, get out, get on with your career.

My 2 cents, anyway.

Good luck!

gneiss

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Re: CDs for college savings/earnings within 2-7 years
« Reply #2 on: December 03, 2017, 08:13:01 AM »
Thank you !  Appreciate your thoughts and comments - !  I hadn't considered bond funds, but I will do some research there - thanks. 
Thanks again - appreciate you checking my thinking !  I have to say it's an interesting transition, going from frugal savers our whole life to all of a sudden (big!) spenders due to college and retirement at the same time -- eek !  :)  But it's our demographic, and thankfully I think we've got it covered.  Also, First world problem, I'm know, and thankful.