College savings questions

[Jules13]

I have a 9th grader (and 6th grader).  The 9th grader has about $25k in his 529 plan and his brother about $23k.  I am wondering if I should alter our savings strategy though after considering what FAFSA looks at.  Granted our EFC is about $30k/year at this point, so just hoping for scholarships at this point. 

We are currently not maxing out 401k, but do max out 2 Roth IRAs.

Considering we will not likely get any need based financial aid anyway, is it worth changing our college savings strategy?  Should we stop contributing to the 529s (it's about $500/month total right now, $300 to the older child) and max out the 401k/Roths instead and then use some of the Roth money if needed for college?  I am currently a stay at home Mom since my boys are homeschooled, but will go back to work once they are back in school (or driving) or to start cash flowing college expenses (upping our income again which I know is the biggest factor for the FAFSA anyway). 

Or should we just keep doing what we are doing?

Thoughts?
Thanks!!

[MDM]

Should we stop contributing to the 529s (it's about $500/month total right now, $300 to the older child) and max out the 401k/Roths instead and then use some of the Roth money if needed for college?

As the saying goes, you can borrow money for college but not for retirement.

See also the Investment Order post for the airplane oxygen mask analogy.

[teacherwithamustache]

You can always change the beneficiary designation from one kid to the other.  So If one gets a scholarship and the other does not just change the beneficiary.  You are correct you are not going to get a lot of Pell grant money.  You have a good chunk of change set aside for their education they should do fine.

[YttriumNitrate]

A lot depends on the type of schools you think your kids might attend. Some schools use just the FAFSA while others also have the CSS. Some schools have eye-popping tuition rates, but then offer generous financial aid while others have more reasonable rates an give out little financial aid.

[Arbitrage]

I would prioritize your 401(k) over the 529s.  That's a lot of tax money you're voluntarily paying by leaving that space unfunded in your 401(k).  If you wanted, you could use the tax savings from the 401(k) and contribute that to your college savings plans.  Given your plan to be earning extra income when they're in college, the EFC contributions from the 529s are probably somewhat immaterial compared to other considerations.  The tax benefits of 529 plans are most significant with contributions made far before college; contributions made only a few years before withdrawal won't give you a whole lot of tax savings anyway.

Simple example - $10k grows to $15k over 6 years at 7%; Tax savings would be approximately 0.15 (capital gains) * $5k = $750 in 6 years.

Tax savings on $10k contributions = $2200 immediately, or the equivalent of $3300 in 6 years.

Yes, there were a lot of assumptions in that simple example (tax rates, ignoring state taxes, dividends, etc.), but hopefully you get the point.

If your state gives you some benefits for contributing to 529 plans, that is worth considering as well.