Author Topic: Where does college savings for children come in?  (Read 5417 times)

Carrie

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Where does college savings for children come in?
« on: August 18, 2013, 07:05:39 PM »
I've been doing the Dave Ramsey thing (we paid off $73k in two years following the babysteps about 8 years ago), and as part of that, we started a small college fund for our child.  I've got it invested in a Vanguard target fund, and not contributing a bunch - only about $100/mo.  Second child's fund just got started this month, through our state's 529, managed by TIAA/CREF, so that we'll get the state tax benefit.  Contributing $150/mo.

I'm comfortable leaving those amounts alone, as we are not planning to fully fund our kid's college.  We want them to take ownership and pay for at least half themselves.  So, we're hoping to be able to cover tuition alone at a state university.  They can cover room & board through part time jobs, scholarships & living on ramen noodles.  Plus, by the time our youngsters reach that age, we should be fully FI and able to help cash flow some.

I was just curious how saving for kids' college comes into play in the early retirement mindset.  Do you hope to give the gift of a college education, to pay part of it, or none at all?  How has kids + college affected your journey towards FI?

Zamboni

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Re: Where does college savings for children come in?
« Reply #1 on: August 18, 2013, 08:04:47 PM »
Good job saving for their college!

I also have 529 accounts and personally I am going to encourage them to apply for scholarships, then pay as much of the rest as I can so that they can focus on studies without distractions and the burden of graduating with debt.  That is if they want to go to college; my brother makes a good living in a trade, and I'll be supportive of whatever career choices call them.

avonlea

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Re: Where does college savings for children come in?
« Reply #2 on: August 18, 2013, 08:30:20 PM »
We do want to help pay for our kids' college educations.  We have 529 accounts for them and hit a major goal this week: the amount needed in today's dollars to cover their instate tuition for four years.  (Yay!)  We plan to continue contributing to the 529s but understand why others would want to stop.

We are not really worried about the motivation factor.  We plan to tell our kids that any money in their accounts that is not used for regular college expenses can be spent on different wise pursuits: study abroad programs, graduate studies, a down payment on a house a little later in life (a bit of a penalty will be taken most likely since not an educational expense but we're ok with that), etc.  I'm pretty sure these prospects can spur them on to qualifying for scholarships, but I think that many kids would like to earn scholarships anyway for the self-confidence and satisfaction of contributing to their own futures.  If our children can't obtain scholarships, they might also consider living at home instead of using the 529 to pay for room and board.  It will be a real-life situation where they can find that not all extra savings has to come from extra income.

I don't know if this is relevant to what you're asking, but it helps me a lot to start with small goals so that I can hit victories fairly often.  Such as: 1 year of community college tuition for one child (then both), 2 years of community college tuition, 2 years cc plus one year of instate tuition, two years cc and two years of instate tuition, 3 years instate tuition, 4 years instate tuition. 
College savings calculators give totals that I can find a little overwhelming.  If I break one big goal down into lots of mini-goals, it helps me to stay positive.

I don't count their college funds at all towards FI.  I don't count it in the calculations for saving or spending. 
« Last Edit: August 19, 2013, 05:51:06 AM by avonlea »

avonlea

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Re: Where does college savings for children come in?
« Reply #3 on: August 18, 2013, 08:31:58 PM »
I also have 529 accounts and personally I am going to encourage them to apply for scholarships, then pay as much of the rest as I can so that they can focus on studies without distractions and the burden of graduating with debt.  That is if they want to go to college; my brother makes a good living in a trade, and I'll be supportive of whatever career choices call them.

We also will support our kids' endeavors if they choose not to attend college.

Freeyourchains2

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Re: Where does college savings for children come in?
« Reply #4 on: August 20, 2013, 06:47:36 AM »
An interesting idea to help supplement college living expenses for your child. If you can, invest in a 4 bedroom house located next to campus (if child is allowed to live off campus).

Have your child manage the rent collection of all his chosen roommates and have them split the utilities.

Then your child lives at the House for "Free" with "free" utilities all the while going to college for however long.

Then sell the house when they graduate or continue renting it out.

mpbaker22

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Re: Where does college savings for children come in?
« Reply #5 on: August 20, 2013, 07:19:32 AM »
An interesting idea to help supplement college living expenses for your child. If you can, invest in a 4 bedroom house located next to campus (if child is allowed to live off campus).

Have your child manage the rent collection of all his chosen roommates and have them split the utilities.

Then your child lives at the House for "Free" with "free" utilities all the while going to college for however long.

Then sell the house when they graduate or continue renting it out.

Just make sure he/she has an incentive to shy away from trashing the place, and make sure he/she understands that incentive.  College towns typically attract higher renting rates precisely because young adults are more likely to cause damage to the house.

kolorado

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Re: Where does college savings for children come in?
« Reply #6 on: August 20, 2013, 07:52:01 AM »
We're paying for two years of community college or tech school. We are 14 years from retirement and have three kids but the account for them is fully funded(that is, will grow to be fully funded with moderate returns and no additional deposits over the next 10-16 years until needed by the kids).
As extra insurance for starting them out with an advantage in life, I'm teaching them the beginnings of a trade and will operate some kind of small  "business" to get them real work experience. I'm a competent baker and sew-er so I know I can teach those although selling those services to others will be a mostly new experience for me.  I'm also learning all kinds of great stuff through working with Habitat for Humanity. I'll most likely have the kids volunteer with me when they age-in. I also know people who have their own trade businesses and may ask them to apprentice my kids.

Carrie

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Re: Where does college savings for children come in?
« Reply #7 on: August 20, 2013, 03:12:48 PM »
I love the starting a small business idea for teenagers.  The thread about all the jobs held made me really see how ambitious and entrepreneurial kids can be.  Those lists were impressive.  I had forgotten all the little things I'd done myself to make money from childhood on.  I used to be a much harder worker way back then!

I am comfortable with trade school, starting at community college, or getting full tuition scholarships.  I'm not overly impressed by expensive programs or universities.  Pedigree of university doesn't seem to matter much in our circles or geographic area.  I'm much more impressed with degrees earned without student loan debt.  I'm also impressed by skilled craftsmen and tradesmen who can make a living doing what they love.   

I wouldn't mind at all if my boys end up not needing the money we set aside (either because of life choices - trades school or apprenticeship; or full scholarships; or choosing to live at home and attending local universities; or paying their own way completely or a combination of those options.).  I'll take the penalty and drop the money into retirement.  :)

WageSlave

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Re: Where does college savings for children come in?
« Reply #8 on: August 30, 2013, 11:43:41 AM »
I was just curious how saving for kids' college comes into play in the early retirement mindset.  Do you hope to give the gift of a college education, to pay part of it, or none at all?  How has kids + college affected your journey towards FI?

What I do is to first define the parameters FI.  E.g. a portfolio value of X based on dividends or SWR.  Then I add Y to X, where Y is the cost of tuition in today's dollars for my two kids.

My understanding is that tuition costs have been rising faster than inflation.  If this persists, my strategy may come up short.  On the other hand, my combined portfolio (personal FI + tuition) will be greater than my FI alone, so I should see a little extra growth and/or dividends.  Also, I intend to have some kind of "hobby job" once I'm FI that generates enough income to meet most or all living expenses (meaning my portfolio will continue to grow).

There has been some debate on this forum about whether or not you should pay for your kids' tuition.  There has even been some debate about the actual necessity of a college degree.  In theory, I see both sides of the arguments.  In reality, my wife is insisting that (1) our kids to go college, and (2) we pay for it.  :)

But, my oldest kid is only 2.5, so it's impossible to say what the state of the world will be in about 16 years.  Things will certainly be different, but exactly what will be different and to what degree, who knows?

I thought about 529s, but decided they weren't for me.  Now I can't remember why; I don't think I had a terribly strong opinion on the matter.  But I loosely settled on the idea of using Series I Bonds (from Treasury Direct) for funding any tuition.  I like that they are tax-deferred (no taxes due until redeemed), and may be tax-exempt if used for qualifying educational expenses.  So it seems to me they have some of the same benefits as 529 plans, but are still "general purpose", i.e. they can be redeemed whenever, and don't have to be used for educational purposes.