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How much, and how will you use the 529 money

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  • TheGipper
    replied
    I think the primary reasons for escalating costs are:

    1) Government taking over the student loan space and artificially lowering interest rates and offering the possibility of loan forgiveness. This lets families borrow way more than they should and allows colleges to keep jacking up the price. Vicious cycle.

    2) Very few families actually pay full sticker price. This allows colleges to keep raising tuition and those that can afford to pay full price get screwed.

    3) Few families view college as a price/value investment, and are still blindly going to the "best" school they get into regardless of costs or whether their kid is mature or talented enough to get a return on the investment.

    My prediction:
    In a decade or two, we may have a two tier college system. The majority of colleges, even Ivy league schools, will offer a virtual degree for a fraction of the cost for most of their students and a much higher cost on site program for the minority.

    Leave a comment:


  • G
    replied










    I read this excellent blog post this morning thanks to PhysicianonFIRE’s Sunday Best:

    http://www.ivigilante.com/become-a-529-wizard/

    I am now considering seriously changing my earlier plan.

    Overloading a 529 is a real concern. Reading other’s plans on this thread is very helpful too!

    Again, my plan is to pay for public in-state undergraduate only:

    529: Add 10k/year for the first 3 years of life then for the next 15 years add ~2k in 529 (see: tax refund). This ends up with 30k in 529 front loaded then 30k added to 529 over the next 15 years for a total of 60k added to 529; perhaps with growth over time this might become 100k in the 529 when its time for college?

    Taxable: For the 15 years after age three will earmark 3k/year in the taxable account for college. With this there would be about 45k in the taxable account for college. This contribution could easily be scaled up as needed as we get closer to needing the money (and find out what type of people my children turn out to be) but without any risk of incurring a penalty.

    Cash Flow: The rest.

     

    These decisions are all so personal. But I enjoy reading other perspectives. Thank you for sharing!
    Click to expand…


    That is a really interesting graph about consumer prices.  Does anyone have a succinct answer for why college prices/textbooks are increasing so much?  I mean, I have a sense for why healthcare prices are going up (after meeting last month the new VP RN of Random BS, and two (!) new C-suite bureaucrat MDs)….
    Click to expand…


    I can help you with the college textbook answer:

    http://www.npr.org/sections/money/2014/10/03/353300404/episode-573-why-textbook-prices-keep-climbing
    Click to expand...


    Interesting about the principal agent issue and the fact that the publisher (and would assume the author) makes no money the year after a new edition is released.  Anyway, there is a big black box between the input and the output in terms of pricing; it just seems like somebody is getting squeezed, probably the consumer.  It's neat that the web allows at least some clawback for the consumer who can sell the book.  I will never forget the first semester I sold back my books to the bookstore--I felt wealthy with the $35 I got back!

    I'm reading Michael Lewis's new book; based upon the publication date of his last book, this took him 3 years to write.  The price is $15 on amazon and he will sell more on paperback and going forward as the price dwindles down over time.  Checking my orgo professors textbook, he is releasing his 8th update ($300) since I bought his first edition 24 years ago (so roughly every 3 years).  Arguably the revision time is less than a de novo publication...wouldn't you think future editions would go down in price?

    Leave a comment:


  • FIREshrink
    replied
    the author is understating the flexibility of a 529 and perhaps underestimating the potential tax savings for a high income investor.

    we can deploy unused 529 funds to

    - nieces and nephews

    - future grandchildren

    - graduate school

    - our own education - including in vacation locations - marine biology at University of Hawaii?

    - etc

    The LTCG tax rate for taxable investments for high income investors is 18.8-23.8% plus state. That is not insignificant. It causes both a tax drag and decreases the future value of taxable investments.

    The author's analysis also underestimates (or does not address) the potential benefits of tax arbitrage, namely, deferring taxes on the earnings while in the peak earning years, then making any unqualified withdrawals in retirement when tax brackets may be quite lower.

    For all these reasons we are not afraid to oversave in 529s. We aren't intentionally overdoing it, but since my alma mater, today, costs $265,000 for four years, it is not hard to imagine a cost of $400,000-$500,000 in the 8-15 years from now when we will need the funds. Saving $90,000 for 2 kids per the author's recommendation is going to potentially result in paying far more taxes than necessary.

    Leave a comment:


  • VagabondMD
    replied







    I read this excellent blog post this morning thanks to PhysicianonFIRE’s Sunday Best:

    http://www.ivigilante.com/become-a-529-wizard/

    I am now considering seriously changing my earlier plan.

    Overloading a 529 is a real concern. Reading other’s plans on this thread is very helpful too!

    Again, my plan is to pay for public in-state undergraduate only:

    529: Add 10k/year for the first 3 years of life then for the next 15 years add ~2k in 529 (see: tax refund). This ends up with 30k in 529 front loaded then 30k added to 529 over the next 15 years for a total of 60k added to 529; perhaps with growth over time this might become 100k in the 529 when its time for college?

    Taxable: For the 15 years after age three will earmark 3k/year in the taxable account for college. With this there would be about 45k in the taxable account for college. This contribution could easily be scaled up as needed as we get closer to needing the money (and find out what type of people my children turn out to be) but without any risk of incurring a penalty.

    Cash Flow: The rest.

     

    These decisions are all so personal. But I enjoy reading other perspectives. Thank you for sharing!
    Click to expand…


    That is a really interesting graph about consumer prices.  Does anyone have a succinct answer for why college prices/textbooks are increasing so much?  I mean, I have a sense for why healthcare prices are going up (after meeting last month the new VP RN of Random BS, and two (!) new C-suite bureaucrat MDs)….
    Click to expand...


    I can help you with the college textbook answer:

    http://www.npr.org/sections/money/2014/10/03/353300404/episode-573-why-textbook-prices-keep-climbing

    Leave a comment:


  • G
    replied




    I read this excellent blog post this morning thanks to PhysicianonFIRE’s Sunday Best:

    http://www.ivigilante.com/become-a-529-wizard/

    I am now considering seriously changing my earlier plan.

    Overloading a 529 is a real concern. Reading other’s plans on this thread is very helpful too!

    Again, my plan is to pay for public in-state undergraduate only:

    529: Add 10k/year for the first 3 years of life then for the next 15 years add ~2k in 529 (see: tax refund). This ends up with 30k in 529 front loaded then 30k added to 529 over the next 15 years for a total of 60k added to 529; perhaps with growth over time this might become 100k in the 529 when its time for college?

    Taxable: For the 15 years after age three will earmark 3k/year in the taxable account for college. With this there would be about 45k in the taxable account for college. This contribution could easily be scaled up as needed as we get closer to needing the money (and find out what type of people my children turn out to be) but without any risk of incurring a penalty.

    Cash Flow: The rest.

     

    These decisions are all so personal. But I enjoy reading other perspectives. Thank you for sharing!
    Click to expand...


    That is a really interesting graph about consumer prices.  Does anyone have a succinct answer for why college prices/textbooks are increasing so much?  I mean, I have a sense for why healthcare prices are going up (after meeting last month the new VP RN of Random BS, and two (!) new C-suite bureaucrat MDs)....

    Leave a comment:


  • Atlas Axis
    replied
    I read this excellent blog post this morning thanks to PhysicianonFIRE's Sunday Best:

    http://www.ivigilante.com/become-a-529-wizard/

    I am now considering seriously changing my earlier plan.

    Overloading a 529 is a real concern. Reading other's plans on this thread is very helpful too!

    Again, my plan is to pay for public in-state undergraduate only:

    529: Add 10k/year for the first 3 years of life then for the next 15 years add ~2k in 529 (see: tax refund). This ends up with 30k in 529 front loaded then 30k added to 529 over the next 15 years for a total of 60k added to 529; perhaps with growth over time this might become 100k in the 529 when its time for college? (edit: actually according to Vanguard's College Savings Planner https://vanguard.wealthmsi.com/csp.php with a 6% return this plan can expect to generate 142k)

    Taxable: For the 15 years after age three will earmark 3k/year in the taxable account for college. With this there would be about 45k in the taxable account for college. This contribution could easily be scaled up as needed as we get closer to needing the money (and find out what type of people my children turn out to be) but without any risk of incurring a penalty.

    Cash Flow: The rest.

     

    These decisions are all so personal. But I enjoy reading other perspectives. Thank you for sharing!

    Leave a comment:


  • Kamban
    replied
    Great responses.

     

    I feel that front loading to the max ( I did 5 years, then another 2) and starting at birth will give better returns due to compounding than higher amounts say at age 10. Even with the crash of 2008 my 120K has almost doubled to 210 K and my daughter has another 4 years to go before she starts college.

     

    Another thought I have been mulling about. I think the maximum number of topics started in WCI is about student loans, how to repay it, will it go away at death and how it is affecting the retirement savings. Would it not be nice to start life with minimal or no student debt? Most physician kids are unlikely to get financial aid scholarships. Most of them, especially those who post here will have kids who will do grad school or professional degrees.

    I have noticed that the undergrad good state schools cost only $25K per year in my state ( 12K tuition and $12K expenses). I suppose in most other states the amounts are similar. That comes to $100K for 4 years in today's dollars, maybe less if they work in summer.  On the other hand the undergrad private colleges easily cost $50-60K per year, an expense of $200-240K over a 4 year period. I am not so sure that going to those will improve the chances of getting into a medical school or improving earning potentia,l so as to spend an additional $100-150K on it.

    How many of you want to send you kids to private undergrad schools rather than good in state public schools. I hope my child goes to a good public school and uses the bulk of her 529 savings for professional education. But would it be stupid to turn down a great private school like an Ivy league school which might increase the chances of getting into a medical or law school even though it will drain the 529 money. Or is it a myth that great private undergrad schools like Princeton makes getting into a medical school easier than a good public school like UF or UNC Chapel Hill.

    Leave a comment:


  • Hatton
    replied
    note of caution.  My brothers kids rebelled. Both he and his wife are lawyers.  Two out of 3 kids refused to go to college.  Their grandmother prepaid their tuition.  The money was wasted and the grandmothers heart was broken.

    Leave a comment:


  • canadianoutlaw
    replied


    My alma matter has been increasing tuition by 4.8% annually for the last 20 years
    Click to expand...


    :cry:

    I think nationally its about 6%? Agree the system is ripe for disruption... and that includes medical education.

     

    Great thread - Interesting how much variability there is here, clearly a personal topic. WCI does $3680/year for the tax break.

     

    We've got our first kid coming in the fall but are still in training. I like the idea of front loading when we become attendings.

     

    https://www.whitecoatinvestor.com/how-my-children-will-pay-for-their-college/

    Leave a comment:


  • StarTrekDoc
    replied
    Front load as you can and then get the appreciation to cross the finish line.  Most of us should be able to fund, the key is not to overfund since most of us have other options to tax defer and why pay the penalty?

    We have 180K and she's entering HS; so hopefully the 4 years will see it cross 200K without any further contributions (last funds entered about 4 years ago).    50K per year is a good number to balance between public/private.

    Leave a comment:


  • westcoaster
    replied
    Great topic. We have a 2 yo and hopefully another on the way some day soon. We've contributed 28k/yr for the 2 yo now since birth. I was planning on doing that until age 5 (140k) and then contributing 5k/yr until age 18 with a target of 250-300k for each.

    I'm hoping to cover undergrad and, like others, cash-flow the difference. Grad school we'll see what happens but I would be OK with them taking some loans on that and having us help out as we can.

    Leave a comment:


  • BetweenTwoElephants
    replied
    For my five kids I hope to have about 75k for the first child and 150k for the last around 9 years later. I intentionally hope to be under shooting what they will need as I want them to have some skin in the game when the time comes to get higher education, but I don't mean debt. That won't happen. I worked throughout college and think I greatly benefited from it. I can always delay funding my taxable account when the time comes to pay for college if there is a shortfall. We don't get a state tax deduction so no help there.

    Leave a comment:


  • gb
    replied
    3 kids (5, 3,1) - In the process of front loading $28k/year each. Not sure how long I will have to do that for. For a 1 year old 4 years of college is going to be $$$.

    Leave a comment:


  • ENT Doc
    replied
    My children will not be starting college for another 16-18 years.  Long horizon and want to get as much in as possible now.  They will also not get any financial aid I'm guessing.  We are currently contributing the max gift amount per month for the 1st child and will start the same when the other comes along in a few months.  Aggressive investments in the lowest cost plan available.  Pay any remainder in cash and have them work or take some loans on if they decide to go to some high cost/high quality school over something of lower cost and hopefully equal value.  Agreed with other posters about teaching them the value of money and the burden of debt.  Of course I hope that a decade of talking personal finance and seeking value will have sunk in at that point.  I plan on contributing until I reach the contribution limit and may even switch the money to another state to get a higher contribution limit.  Don't plan on using all of the money for college - grad school is potentially worse.  My alma matter has been increasing tuition by 4.8% annually for the last 20 years.  And that's just undergrad.  Additional funds can be gifted incrementally to the next generation without having to use cash flow.  Of course this all assumes nothing disrupts the ************************ out of a system that is ripe for disruption.

    Leave a comment:


  • Wudoc111
    replied
    Education savings (evolved into various 529s from other products):

    1st child (HS senior) $231K and narrowing down where he will go but as posted above $52,000 per year is about right.

    2nd child (HS freshman) $90K and she will take unused amount from her brother

    Will chip in more if needed but hope they learn some value of money (LOL, it took me until after I met my wife).

    Leave a comment:

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