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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: firelight on July 11, 2014, 09:32:25 PM

Title: Saving for kids education
Post by: firelight on July 11, 2014, 09:32:25 PM
We are looking at various options for saving for our kid's education but are confused about the best way to go.
If it would help, we are in california and the baby is on the way! So we are starting anew!
Also we are not sure if we'll settle down here... so not particular about state specific plans (though if they are better, we are open to it)

We also want to be flexible if our kid decides not to go to college and prefers to use that money for something else (business, travel, house downpayment, etc). We hope our kid is mustachian enough to take the right decisions when the time comes.

Mustachians, how do you save for your kid's college education?
Title: Re: Saving for kids education
Post by: fxsts12 on July 12, 2014, 07:06:11 AM
We setup coverdellell ESA which has a 2k limit per year and can roll to siblings. It is not restricted to any state.  I used Scottrade to setup and manage the investments (mostly invested in Berkshire Hathaway which I consider an index). Anything additional and I will just use a regular brokerage in my name. I don't expect a huge college savings. We ask grandparents to help fund at birthday and Christmas. In a perfect world the grandparents would manage a brokerage account for the grandchildren so they don't have assets related to financial aid.
Title: Re: Saving for kids education
Post by: SDREMNGR on July 12, 2014, 07:30:43 AM
I do not recommend doing any sort of kid specific savings plans. I'm assuming that you are not rich.  Rich people who have to pay 100% for college in cash should use these college savings vehicles.  Regular folks should not. Reason is that colleges will calculate a higher portion of these funds into use per their financial aid calculations. So the best thing to do is to max out your retirement plans and even your taxable accounts before doing any college savings plans in the kids name.  That will save you and the kid more money.  And you can always contribute more than the colleges will ask.
Title: Re: Saving for kids education
Post by: Joy on July 12, 2014, 08:12:18 AM
We started 529 plans for each of our kids when they were newborns. We started off in out of state plans that our financial advisor chose for us. After some reading on this site, I started to look into the expense ratios on the accounts and learned that we were paying crazy fees and missing out on a state tax deduction. I transferred our accounts to our in state plan and put them into index funds with very low expense ratios. We contribute 200 per month per child.   
I know there is a debate regarding whether it is wise to invest money in their names, however we will likely have a high net worth when the time comes and will be faced with a large expected family contribution. We do not want our children to be saddled with huge debt if we can help it. We sleep better knowing we are saving for this potentially very large expense.