Saving for College

[StetsTerhune]

So the other day the wife and I were discussing whether we want to have children, which is a fairly common discussion for us. The talk went towards the financial impact of having kids. I'm not saying that's a major factor in our decision, but it's not meaningless either.

My wife brought up the cost of college and that she'd want to be able to cover college for them. I've been thinking about this and had what I hope is a great, if slightly amoral, idea. Hoping to get some feedback on this idea, as I feel like I may be missing something.

There are 62 colleges in the US that claim to fully meet financial aid. (http://www.usnews.com/education/best-colleges/paying-for-college/articles/2012/02/16/colleges-that-claim-to-meet-full-financial-need).
This is defined as fully bridging the gap between the Expected Family Contribution (EFC) and the cost of attending. Some use subsidized loans to do this, but many are fully "no loan" and grant-based.

The trick, then, is to minimize the "Expected Family Contribution" that's calculated. As far as I can tell this is based on:
1. Income, which would be very small for me, since I'll be retired and will only have dividends to worry about.
2. parental and children's assets. Since this is 19 years from now, I oughta be able to convert all my assets to my Roth IRA (which doesn't count in the calcs) by then, converting back only what I need to spend every year.

This would mean my assets would be minimal and my income would be minimal, thus our EFC would be minimal as well. So if we managed to get our child to go to one of those schools (which, granted, are nearly all very, very good schools), we'd basically get it for free. Right?

[JohnGalt]

So the other day the wife and I were discussing whether we want to have children, which is a fairly common discussion for us. The talk went towards the financial impact of having kids. I'm not saying that's a major factor in our decision, but it's not meaningless either.

My wife brought up the cost of college and that she'd want to be able to cover college for them. I've been thinking about this and had what I hope is a great, if slightly amoral, idea. Hoping to get some feedback on this idea, as I feel like I may be missing something.

There are 62 colleges in the US that claim to fully meet financial aid. (http://www.usnews.com/education/best-colleges/paying-for-college/articles/2012/02/16/colleges-that-claim-to-meet-full-financial-need).
This is defined as fully bridging the gap between the Expected Family Contribution (EFC) and the cost of attending. Some use subsidized loans to do this, but many are fully "no loan" and grant-based.

The trick, then, is to minimize the "Expected Family Contribution" that's calculated. As far as I can tell this is based on:
1. Income, which would be very small for me, since I'll be retired and will only have dividends to worry about.
2. parental and children's assets. Since this is 19 years from now, I oughta be able to convert all my assets to my Roth IRA (which doesn't count in the calcs) by then, converting only what I need to spend every year.

This would mean my assets would be minimal and my income would be minimal, thus our EFC would be minimal as well. So if we managed to get our child to go to one of those schools (which, granted, are nearly all very, very good schools), we'd basically get it for free. Right?

First - I definitely would not count on today's college financial policies standing 18+ years from now. 

What will you be converting to Roth?  If 401k/IRA then yeah you'll be able to convert it.  If it's after tax dollars - you can only contribute if you have earned income in a tax year so you won't be able to get your post tax money in there without working. 

[StetsTerhune]

I don't mean physically "converting" to an IRA, but after 18+ years of my IRA growing tax-free with no withdrawals it'll be significantly larger than it is now, meanwhile I'll be drawing down my "after-tax" assets for 18+ years, probably nearing depletion at about that time.

[James]

Intriguing?  Yes.


Would I count on it?  No

[Russ]

Another way to minimize EFC is to stop claiming your kid as a dependent. Then your assets and income are out of the picture, and all they count is your child's assets (if any) and income (less a 6000 dollar or so allowance). I wouldn't count on it either, though.

[Nords]

This would mean my assets would be minimal and my income would be minimal, thus our EFC would be minimal as well. So if we managed to get our child to go to one of those schools (which, granted, are nearly all very, very good schools), we'd basically get it for free. Right?

The only risk you take over the next 18 years is that the whole system changes its rules.  It's already widely accepted that the retail prices are only paid by scholarship funds, the military's ROTC, and a few who aren't working the system.

I think the best approach is to encourage a kid's lifelong interest in learning.  They'll get the grades for the school they want (if indeed they want a college degree) and they'll figure out the rest with scholarships, work-study, and loans.

The best advice is to take care of your own FI first.  It's a lot easier to find ways to pay for college than it is to obtain financial assistance for early retirement.

[$_gone_amok]

We are using 529s to save for college. What are the pros and cons of using 529 vs using your retirement account to pay for college?