Author Topic: Help! Need college savings advice!  (Read 2765 times)

playtah

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Help! Need college savings advice!
« on: June 11, 2015, 11:27:22 AM »
Hello, fellow Mustachians!  I need your advice. I have about 30K sitting in a savings account that I have earmarked to help out my 3 kids (ages 15, 13, 8) with college expenses eventually. I'm torn, because I don't want to make a bad decision and lose my shirt if I make bad investment decisions. The options I am considering are as follows:

1. Leave the money in the savings account (very low interest, less than 1%)
2. Start a taxable Vanguard account and invest in index funds.
3. Start a 529 (maybe through Vanguard/Nevada?)

I'm scared because my oldest will be heading to college in 3 short years, and I don't want to make a bad investment decision, hit a crash, and take a decade to recover. At the same time, I realize that I'm (in a sense) "losing" money by keeping it in the savings account, because the interest isn't keeping pace with inflation. What would you all recommend?

matchewed

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Re: Help! Need college savings advice!
« Reply #1 on: June 11, 2015, 11:56:02 AM »
I'd start with having a defined amount you are willing to provide each child. Then split up the 30k appropriately with the appropriate risk profile (considering return risk and taxation).

So for instance if you said I'd like to be able to give them each 15k then you should put 15k in a savings account for the 15 yr old and invest say 10k for the 13 yr old (tough to get 50% return over five years after taxes though). This is just an example. I know very little about 529's someone else will need to jump in and share their experiences.

adamwoods137

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Re: Help! Need college savings advice!
« Reply #2 on: June 11, 2015, 12:44:31 PM »
Hello, fellow Mustachians!  I need your advice. I have about 30K sitting in a savings account that I have earmarked to help out my 3 kids (ages 15, 13, 8) with college expenses eventually. I'm torn, because I don't want to make a bad decision and lose my shirt if I make bad investment decisions. The options I am considering are as follows:

1. Leave the money in the savings account (very low interest, less than 1%)
2. Start a taxable Vanguard account and invest in index funds.
3. Start a 529 (maybe through Vanguard/Nevada?)

I'm scared because my oldest will be heading to college in 3 short years, and I don't want to make a bad investment decision, hit a crash, and take a decade to recover. At the same time, I realize that I'm (in a sense) "losing" money by keeping it in the savings account, because the interest isn't keeping pace with inflation. What would you all recommend?

matchewed is right about splitting it up.  Unfortunately 30k isn't going to cover college and you'll want to include future contributions in your split. For the short term stuff the answer couldn't be simpler though.  At least 5K ought to go into I-Bonds (annual max), and the rest into CDs.  Figure out where you will put the money and then get a 529 to encapsulate it.  You have a huge advantage in that you know exactly when you'll need the money.  Put it in the thing that locks up the money for exactly as long as it should be locked up for.  The stock market is too risky over 3 years, especially given that it is expensive on a historical basis.  (Not saying there will be a crash, or when there will be a crash, just saying that if you were the sort of person who thought that taking a shot in the stock market with shortish-term funds, now wouldn't be the lowest risk time to do it.)

StressLess

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Re: Help! Need college savings advice!
« Reply #3 on: June 11, 2015, 12:53:50 PM »
As someone who just turned 30 and finished paying off student loans - I would make sure your kids have an understanding of the true cost of a private vs state education.

Also talk to them about student loans and debt.  Give them a breakdown of what they will be paying once the party stops...



Jesstache

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Re: Help! Need college savings advice!
« Reply #4 on: June 11, 2015, 04:03:57 PM »
Ugh, I just wrote up a big thing on ibonds but lost it. 

Basically you can buy $10k per social security number per year.  So you, your wife, grandma, possibly a kid, to put all your $30k into ibonds at once or break up the purchase over two years, whatever.  There is no tax on interest earned if used for education costs and they are indexed to inflation (depending on whose number for inflation you believe). 

This is what we use for our college savings fund for our kids plus you don't HAVE to use it for education if they don't need it (not sure how 529's work in this way).  You can do it all electronically and have it set up to do automatic purchases from your linked account.  Lower returns than the stock market but... lower risk.

GizmoTX

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Re: Help! Need college savings advice!
« Reply #5 on: June 11, 2015, 05:17:52 PM »
Savings bonds can't be in a kid's name to get the education benefit.

playtah

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Re: Help! Need college savings advice!
« Reply #6 on: June 12, 2015, 07:05:29 AM »
Thank you, everyone!  You've given me several options to consider! Thank you for your wisdom!