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How much, and how will you use the 529 money

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  • G
    replied




    Did not read replies- anyway funded 529 minimally, but oldest kid had so many scholarships realised we might pay penalty on withdrawals rather than benefit from 529 (or end up giving it away elsewhere) with 2nd child. SO quickly used up both kids 529 funds for the little bit remaining due for 1st child, and have not regretted it esp. since we have GI bill still to use for 2nd kid (but if she is as cheap as 1st, we’re gonna save THAT for law/MBA school for one of them or maybe me or dad). So be sure if all the kids get free rides, you aren’t kicking yourself for funding a 529. (The more kids you have, and the closer to average they seem to be at school, the less risk to that.) Or require a few of them to go to professional schools just to use up the money.
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    Hm...I believe there is no penalty if the child receives a scholarship, but what I am interested in, what is the time frame for requesting this reimbursement?  In other words, can you let the 529 sit for several years after your child is done with school so that it continues to grow, then go back and deduct the scholarship amount a couple decades later tax free--you'd hopefully still have a pretty big account.  With multiple children/generations, it could be a bit of temporal arbitrage....  I'm sure somebody in the IRS has thought of this?

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  • Jenn
    replied
    Did not read replies- anyway funded 529 minimally, but oldest kid had so many scholarships realised we might pay penalty on withdrawals rather than benefit from 529 (or end up giving it away elsewhere) with 2nd child. SO quickly used up both kids 529 funds for the little bit remaining due for 1st child, and have not regretted it esp. since we have GI bill still to use for 2nd kid (but if she is as cheap as 1st, we're gonna save THAT for law/MBA school for one of them or maybe me or dad). So be sure if all the kids get free rides, you aren't kicking yourself for funding a 529. (The more kids you have, and the closer to average they seem to be at school, the less risk to that.) Or require a few of them to go to professional schools just to use up the money.

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  • actuaryonfire
    replied

    This thread inspired me to do some modeling on 529 contributions and investment strategy that I turned into a post. I feel a bit guilty about not contributing to the discussion here. So...


    If someone wants to be an (anonymous) case study I would be interested to model it out. For example "I plan to start saving for my 10 year old child. Tell me the minimum contribution required to have a 95% chance of being able to fully fund college costs of $60k a year for four years (in today's $'s)"


    Or perhaps: "I'm planning to contribute $15k a year for my 11 year old. Tell me the minimum risk investment strategy that fully funds college with a 95% chance"


    Or: "Show me the risk/return tradeoff between contribution amount and portfolio risk for contributing for my 9 year old"


    Drop me a note if interested.

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  • Sneezy
    replied
    I had kids "early" (end of 3rd year of medical school and after 2nd year of residency) and am breadwinner for family so at first only saved a little including all the cash gifts they got

    As my income increased as an attending I added more, eventually $1k/month per month until I got my current higher paying job.  Then went to $2k/month.

    My son is a 2nd-year at an expensive private school so am spending the money down

    Daughter is in 10th grade, but savings on hold as if returns are good I have around enough money

    I went to an Ivy and really think I benefited from that experience.  I want to offer the same to my kids, although I understand that others have different perspectives

    I am a bit concerned about grad school although my son at least looks like if he goes to grad school will be for a Ph.D. in the sciences which should be largely funded

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  • RogueDadMD
    replied


    ’t how you think you are supposed to decide things, but that’s the importance of having those conversations early.
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    StarTrekDoc (can I call you TrekkieDoc?  I'm a Trekkie) -- I think you hit on it in your first line, following roots.  My parents are 1st-gen immigrants to the U.S. from South Asia.  My father is a physician, and the cultural background of our childhood (which is still largely in place for many 1st/2nd gen immigrants, though it's finally relaxing) is that you are expected to be a good student, become some type of professional that can support your family, and that you are supposed to take care of your family (not just kids but parents etc).

    While my siblings and I did not go to fancy colleges, we did go to fancy-pants private middle/high schools.  My parents may have had more money to pay for tuition later if they weren't putting us through private school, but private high school was a decision they made for us.  They essentially were trying to make sure we were as good of a student as possible, however I think irrespective of that, it was the parental expectations and pressure to be a good student that made me succeed.

    It's not an exaggeration when I say that an A- was met with a look of disapproval.  I didn't like it, but it also made me make sure I got good grades so I wouldn't have to deal with it.    Also they made sure it was clear that they thought I was capable of getting excellent grades, so if I failed to do so then I could do better.  Eventually I felt that way myself -- I hated getting an B+/A- when I knew I was capable of doing better.  I can't say it's the right approach -- I know plenty of people and psychologists who disagree with it.  I'm not sure how I'll do it with my own kids (but my oldest is only 8 years old so a bit early to know).

    While there was a lot of parental pressure to enter medicine, as the "rebellious" one I actually took a little more circuitous root as I was pretty anti-medicine in high school and most of college (I ended up with a business degree and pretty much every extra-curricular I did had nothing to do with science or medicine).

    Ultimately I did not enter medicine because of my parents preference, but after exploring the other things I thought might be a good fit, I felt most at home in the medical world.

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  • StarTrekDoc
    replied
    @Rogue - what did your parents do?  Three kids into medical school and successful.  We tend to follow our roots so that maybe a roadmap to your own kids.

    There's not right answer to this problem of wealth and kids - spare the proverbial rod?  Trust baby syndrome?

    We have the means to fund a reasonable education for our children.  In our thought, that means a good secondary education and a choice of their college/university for 4 years.  During these years, it is our parental duty to guide the pros/cons of private vs public vs cost/benefit.  Our 14 yo gets it.  She knows we're forgoing a Tesla family for her high school education.    Grad school is an adult decision in our mind (much the same it went from our parents---along their roots).

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  • RogueDadMD
    replied
    A stream of consciousness post, so forgive the meandering and half thought out conclusions...

    I am somewhat entertained by the many posters on this thread who are "only" planning to save $100k for each child as well as those who are saving enough or use cash flow to fund several hundred thousand per child.  The low savers on this forum are already putting their kids well above the median.

    As someone who had significant parental assistance with med school tuition (my undergrad tuition was negligible due to being at a state school with scholarships), I recognize the value of NOT graduating with significant loan burdens, so don't consider this a dig at those who are massively saving for their kids college.  However the way people describe these massive 529/UTMA/whatever savings, it almost comes across as non-chalant, like it's easy or a no-brainer.

    I am not going to be saving up $400k/child.  Or half of that.  Maybe half of half.  That's the goal I told my wife and she was shocked, thinking it was too much. Then I reminded her of the cost of medical school tuition and the benefit we had (marrying exactly 1 week after graduating) with relatively low debt and it does make you feel like you should save more for them to pay it forward.

    Reading thoughts from those of you who front loaded some ridiculous dollar amount into a 529 when your kids was born at first makes me feel deficient, but then I reign it in and realize this isn't a matter of keeping up with the Jones'.  Both my siblings are physicians; one went to med school overseas and one to a combined undergrad/med school program.  None of us went to "elite" US schools and all of us made it.

    I have semi-joked to my wife that I'm not paying an ungodly sum of money for a kid to get a liberal arts degree at an Ivy League school while they figure out what they want to do with their life and then pay an equally big sum for a grad school (my guess is many ivy league undergrads probably don't want to slum it at a public graduate school unless they have no choice).

    While I would love for my kids to go to Harvard or wherever for the experience and networking, they will end up with some large loans if they do.  There is also a bit of an elitist bias in thinking that's necessary.  It's a debate I suppose on whether the 529 $ is mine vs. theirs to do what they want with.  Should they each be told they get "x total $" and they do whatever they want, or use that as a lever to force them to go to make what you consider an "acceptable" place?  My parents didn't force me to go a state school, but since I knew grad school was likely, they made it clear I would end up with a lot more loans if I did go elsewhere.  As an idealistic 17 year old it wasn't how you think you are supposed to decide things, but that's the importance of having those conversations early.

    A thought just occurred to me -- perhaps it's because I didn't graduate with a significant loan burden I didn't force myself into an extremely high paying field to pay off loans, and thus am not in a position to potentially pay as much for my kids as my parents did for me and my siblings (they assisted all 3 of us in undergrad/grad school to the point that the total loans across all 3 of us were relatively small).

    I am in an university setting that does provide a great tuition benefit if I stick around to use it, and that could add anywhere from $80k-200k per child depending on how it is used.  It does play a little into my own math, but it requires me to work until they finish college (age 58) -- something I always assumed I would do, but reading people like PoF makes me reconsider.

    If I work into my mid-60's then I will have a several million $ retirement fund and could likely pay for most of my kids higher education, but it's hard to commit my 60-year old self to working several more years without knowing what will be going on in his life.

    Then as others have said elsewhere, I try to remind myself that the stress I'm creating for myself trying to pay for my kid's college is partially self-inflicted (and partly societal due to weird economics).  However this is why I have to avoid Starbucks -- how many lattes does it take to offset room & board?

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  • StarTrekDoc
    replied




    In that case I’d probably encourage them to go private but let them make the decision. I don’t owe them that money if they choose not to spend it on education, but they might choose to save it for grad school.

    Not to ruffle any feathers, but I definitely do not think of UNC or UF in the same category as Harvard or Stanford. The only major public U’s that come close to the reputation of HYPS would be U Michigan Ann Arbor, UC Berkeley, and after that… Regionally of course it’s a different story.
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    Gator meat (or any SEC school) does not equal any Ivy equivalent;   UNC is nice.  Agree that state UC and UofM would be on par for cost comparisons.   But again, it's really the student more than the school in most cases.  If you're a top 10% kid, you'll do fine anywhere.

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  • FIREshrink
    replied
    In that case I'd probably encourage them to go private but let them make the decision. I don't owe them that money if they choose not to spend it on education, but they might choose to save it for grad school.

    Not to ruffle any feathers, but I definitely do not think of UNC or UF in the same category as Harvard or Stanford. The only major public U's that come close to the reputation of HYPS would be U Michigan Ann Arbor, UC Berkeley, and after that... Regionally of course it's a different story.

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  • Kamban
    replied


    But if they get into Harvard, or Stanford, and have the personality and intellect to benefit from such an experience, I will be happy to pay for them 100%. April 4, 2017 at 8:04 am MST
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    So what happens when they get admission to Harvard or Yale with no scholarship and $62K per year and at the same time get into a good state school like UNC or UF with 75-100% scholarship.

    Would they rather go to the state school and save $200K and use that towards med school or do they want to get the "experience" of Harvard and be $250K in a hole and then have to pay $400K towards a medical school. This is a situation  where I see the dilemma occurring with bright students who get into these two types of schools.

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  • ENT Doc
    replied




    I contribute just enough to get my state income tax deduction. I’m guessing there will be about 50k or so per kid when all is said and done. I may end up helping them more with college, but not through a 529. It’s crazy how much some docs I know are saving for their kids college – hundreds of thousands per kid. I’m of the belief my kids should take out a few loans or make some money themselves to pay for school. We appreciate things more when we have skin in the game. Somehow I managed to get through college and medical school with minimal financial assistance, and I’m still staring down FI before 50.
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    Funding a child's 529 to the tune of hundreds of thousands is reasonable because:

    1. College costs are rising ~4% or greater on an annualized basis.

    2. Our kids will not be getting any financial aid.

    3. The amount and effect of debt needed to cover college (even a state college) will be far higher than it is was for any of us.  For example, since graduating my undergrad 16 years ago, the inflation-adjusted cost has gone up by 70%.  This is ludicrous.

    4. Taxes are going one way - up - in the future.  They have to in order to fund our massive debt issue.  Don't expect the same cash flow in the future.

    5. This isn't just for undergrad - it's for grad school too.

    6. I have no shame in helping them out (some) when many of their colleagues who attend the same classes and get the same degree pay next to nothing.  This levels the playing field in my opinion.

    7.  This isn't for one generation and can be gifted down without affecting my or my child's future cash flow.

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  • FIREshrink
    replied




    I contribute just enough to get my state income tax deduction. I’m guessing there will be about 50k or so per kid when all is said and done. I may end up helping them more with college, but not through a 529. It’s crazy how much some docs I know are saving for their kids college – hundreds of thousands per kid. I’m of the belief my kids should take out a few loans or make some money themselves to pay for school. We appreciate things more when we have skin in the game. Somehow I managed to get through college and medical school with minimal financial assistance, and I’m still staring down FI before 50.
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    college in your generation probably cost $100k for an elite private education, for four years, all in. Mine was $125k which was less than 1/3 my physician father's annual salary. By the time my kids go to college it will be $500k which will be twice my salary. You know as well as I do that neither physician salaries nor general rates of inflation have kept up with the costs of higher education. Asking our kids to take on hundreds of thousands of dollars isn't a path I plan to take.

    I could force them to go to a community college, or incentivize them to go to a state university, and either might be fine or even best for them. But if they get into Harvard, or Stanford, and have the personality and intellect to benefit from such an experience, I will be happy to pay for them 100%.

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  • jjandjab
    replied




    jjandjab

    Just after I replied to the happy philosopher did find that you post above ( which was posted while I was typing mine ) is exactly the same, including words like pay it forward. Telepathy???  ?
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    That's funny  

    But I will add one last thing that we so expect our kids to earn their own spending money for college beyond books. I'm not picking up the tab for shopping trips and kegs. I fully expect they will be employed over the summer and perhaps even while at school (I worked in the student center pizza place for my four years at college)

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  • Kamban
    replied
    jjandjab

    Just after I replied to the happy philosopher did find that you post above ( which was posted while I was typing mine ) is exactly the same, including words like pay it forward. Telepathy???  

    Leave a comment:


  • Kamban
    replied




    It’s crazy how much some docs I know are saving for their kids college – hundreds of thousands per kid. I’m of the belief my kids should take out a few loans or make some money themselves to pay for school. We appreciate things more when we have skin in the game. Somehow I managed to get through college and medical school with minimal financial assistance, and I’m still staring down FI before 50.
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    Good to have a different point of view. Also there are cultural differences that can explain the extraordinary savings for children's education for some people.

    My father educated me and my 2 siblings with his very modest middle class salary. Granted this was in India, and compared to US medical education it was very inexpensive but in Indian currency it was still quite a bit of money. That was the norm there and no one took any loans for education ( in those days).

    I have the same philosophy and have saved the thousands needed for college / grad school for my daughter. It was partly because of the way I was brought up I felt that it as the right thing to do and that I graduated with no debt and feel that my daughter should have the luxury of doing the same.

    I am not sure how taking loans and having skin in the game is absolutely needed to become a well educated person. I hope that she has the same philosophy as me of "paying it forward" but who know.what happens to second generation Indian kids in USA. God only knows.  

     

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