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How much, and how will you use the 529 money

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  • Avatar G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1799
    Joined: 01/08/2016

    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?

    #38876 Reply
    Avatar TheGipper 
    Participant
    Status: Physician
    Posts: 407
    Joined: 01/20/2016

    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.

    #38881 Reply
    The White Coat Investor The White Coat Investor 
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    Status: Physician
    Posts: 4530
    Joined: 05/13/2011
    My alma matter has been increasing tuition by 4.8% annually for the last 20 years 

    Click to expand…

    ?

    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/

    Click to expand…

    I did $4K this year for each kid. I front-loaded the 1 year old’s with an extra $10K at birth. At the time my thought was to do it now in case I wanted to retire early. The original plan was to have $25-30K per kid. As our income goes up that might get up as high as $100K. That’ll get them through any reasonable undergrad in our state without working or getting scholarships at all and probably still have a big chunk left over for grad/professional school. When you’ve got 4+ kids, it’s a major deal to have the $200-300K some people on this thread are talking about for each kid.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #38919 Reply
    Avatar Atlas Axis 
    Participant
    Status: Physician
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    Joined: 02/16/2016

    This is a nifty tool. Vanguard College Savings Planner:

    https://vanguard.wealthmsi.com/csp.php

    #39106 Reply
    Avatar George 
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    Status: Physician
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    Joined: 01/11/2017

    Being the devils advocate and just food for thought… when does the $ set aside in a 529 reach the point that investing it elsewhere and setting up a trust for the kiddos assuming they are going to take home median household income outpaces the financial point of going to college?

    e.g. your “$500,000” alma mater versus putting $ in an account earning X% per year, then letting them live partially off the interest and standard pay…

    Eventually the paths will cross as median income stagnates, and college costs increase… (assuming that that college degree doesn’t pay off).

    From the US census average college grads make around $50k/yr while high school grads make $30k/yr.  I bet you could make that extra $20k from a $500,00k trust pretty easy, and have the extra original investment money (free to use as well).

    Not an argument to go (or not) to college, but eventually the rewards won’t overshadow the costs.

    Once again playing the devils advocate here (I personally have 2 x 529’s that will be around $200k each around college time).

    #42277 Reply
    The White Coat Investor The White Coat Investor 
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    Status: Physician
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    Joined: 05/13/2011

    I agree. I’ve wondered that a lot when I run into these people putting in $140K at birth. $140K earning 5% real for 65 years equals $3.3 Million in today’s money.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #42284 Reply
    Avatar StarTrekDoc 
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    Status: Physician
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    Joined: 01/15/2017

    What’s the value of an education?  Some say it’s more than the end $ value.  I would believe that most will admit that per hour effort, physicians aren’t a great ROI as a whole.  What we do with that education usually translates to a lot more though….as in many other undervalued professions — namely teachers.

    That said, I have the means to allow freedom of choice for my children — one that I pray they will learn and pass down and pay it forward.

    #42285 Reply
    Avatar FIREshrink 
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    Status: Physician
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    Joined: 01/11/2017

    I agree. I’ve wondered that a lot when I run into these people putting in $140K at birth. $140K earning 5% real for 65 years equals $3.3 Million in today’s money.

    Click to expand…

    I didn’t put $140k in at birth but could have afforded to (didn’t think about it) – invested in taxable instead. We lump summed about one fourth of that and added more along the way.

    I guess it doesn’t have to be either/or. Lump summing large amounts can yield both enough for a child’s education as well as a stream of income to that grown child for many years into the future, or a lump sum at that child’s retirement. That stream of income or lump sum in retirement can be used to offset other real expenses, such as… saving for their own children’s education – which is where the advantages of a 529 really shine.

    #42309 Reply
    Avatar jjandjab 
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    Status: Physician
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    Joined: 10/19/2016

    We have between 145-160k each for three kids (ages 17,16 ad 14) in 529 plans. We are currently contributing up to the the state income tax credit limit (I earn income in two states, Vermont has an awesome $500 tax credit on $5000 per child per year – instant 10% return; Massachusetts has a new stingy/crummy tax benefit, but we contributed the requisite 2k anyway). So we still put in 17k per year overall.

    We are then saving monthly – currently about another 150k and growing fast – in a taxable account. Our reasoning goes along with some of the recent posts. We are encouraging our kids to make a value-based choice for college. We are encouraging, but not requiring, state schools for undergrad, as that could be fully funded with what is already saved. Remainder can be used for grad school, if needed, or as a base for starting out in life. My only rule, which the kids get a kick out of, is no liberal arts major (English, art history, sociology, etc,) unless they go to state school or get a scholarship – I’m not paying 70k for an English major at Swarthmore or Vassar – no offense to any grads from there, just an example!

    Take our son who hopes to be an engineer, applying next year, he could do Carnegie Mellon or RPI for 70k+ per year, or UMass Amherst at 30k per year. Or even a good out-of-state school like Purdue where the all-in cost is 45k or so… We would have to think twice if he got into an MIT or CalTech – we do think the highest of the high echelon of schools might actually carry weight of name in moving forward.

    And for those of you with really young kids, if the prediction of 500k for 4 years of private school becomes reality, I would even more strongly consider kids to look at high quality public schools and keep the differential. Or tell my kids to become electricians or plumbers and take the whole 500k in cash.

    But clearly I am a believer in that a good student will be a good student almost anywhere, and vice versa. I’ve had neighbors whose kid went to private preschool, grade school, high school and college – 18 years of expensive private education – and become a nanny/daycare worker; or on the flipside a nephew got full-ride to what I would have called a mediocre state school at best, and then went to a high level business school and now works in bond trading at Fidelity. Not that this always the norm by any means, but so much has to do with luck and perseverance, in addition to smarts and money, in generating return-on-investment with regards to education.

    #42320 Reply
    Avatar StarTrekDoc 
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    Status: Physician
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    @JJ&J -Agreed; top 10% children will thrive in any situation they are thrown into.  It’s the median that private education ‘should’ lift higher and more chances of success.  The bottom 25% regardless will regress toward inherent tendencies long term.

    The schooling that matters most is the last school you attend; not so much the progressive lineage.   So Rural HS to CC to public college to state med school to Hopkins residency makes little care of past on job placement after Hopkins.  Granted, that path is a lot rarer than a traditional Hopkins grad.

    And everyone need not go to Hopkins to be considered successful.   😉

    #42326 Reply
    Avatar FIREshrink 
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    Status: Physician
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    Joined: 01/11/2017

    We have between 145-160k each for three kids (ages 17,16 ad 14) in 529 plans. We are currently contributing up to the the state income tax credit limit (I earn income in two states, Vermont has an awesome $500 tax credit on $5000 per child per year – instant 10% return; Massachusetts has a new stingy/crummy tax benefit, but we contributed the requisite 2k anyway). So we still put in 17k per year overall.

    We are then saving monthly – currently about another 150k and growing fast – in a taxable account. Our reasoning goes along with some of the recent posts. We are encouraging our kids to make a value-based choice for college. We are encouraging, but not requiring, state schools for undergrad, as that could be fully funded with what is already saved. Remainder can be used for grad school, if needed, or as a base for starting out in life. My only rule, which the kids get a kick out of, is no liberal arts major (English, art history, sociology, etc,) unless they go to state school or get a scholarship – I’m not paying 70k for an English major at Swarthmore or Vassar – no offense to any grads from there, just an example!

    Take our son who hopes to be an engineer, applying next year, he could do Carnegie Mellon or RPI for 70k+ per year, or UMass Amherst at 30k per year. Or even a good out-of-state school like Purdue where the all-in cost is 45k or so… We would have to think twice if he got into an MIT or CalTech – we do think the highest of the high echelon of schools might actually carry weight of name in moving forward.

    And for those of you with really young kids, if the prediction of 500k for 4 years of private school becomes reality, I would even more strongly consider kids to look at high quality public schools and keep the differential. Or tell my kids to become electricians or plumbers and take the whole 500k in cash.

    But clearly I am a believer in that a good student will be a good student almost anywhere, and vice versa. I’ve had neighbors whose kid went to private preschool, grade school, high school and college – 18 years of expensive private education – and become a nanny/daycare worker; or on the flipside a nephew got full-ride to what I would have called a mediocre state school at best, and then went to a high level business school and now works in bond trading at Fidelity. Not that this always the norm by any means, but so much has to do with luck and perseverance, in addition to smarts and money, in generating return-on-investment with regards to education.

    Click to expand…

    I do not know why you would prohibit English, history, sociology, anthropology, or any other major or minor as long as they also develop marketable skills. Certainly many medical school matriculants have not majored in a STEM field. I majored in bio but almost completed a double major in African American studies; a few classes either way and I would have been an African American studies major with no biology major and I doubt it would have impacted my medical school choices or career in any way.

    There is value in a broad and deep liberal arts education, as long as other employable skills are accrued during the journey.

    #42327 Reply
    Avatar jjandjab 
    Participant
    Status: Physician
    Posts: 34
    Joined: 10/19/2016

    We have between 145-160k each for three kids (ages 17,16 ad 14) in 529 plans. We are currently contributing up to the the state income tax credit limit (I earn income in two states, Vermont has an awesome $500 tax credit on $5000 per child per year – instant 10% return; Massachusetts has a new stingy/crummy tax benefit, but we contributed the requisite 2k anyway). So we still put in 17k per year overall.

    We are then saving monthly – currently about another 150k and growing fast – in a taxable account. Our reasoning goes along with some of the recent posts. We are encouraging our kids to make a value-based choice for college. We are encouraging, but not requiring, state schools for undergrad, as that could be fully funded with what is already saved. Remainder can be used for grad school, if needed, or as a base for starting out in life. My only rule, which the kids get a kick out of, is no liberal arts major (English, art history, sociology, etc,) unless they go to state school or get a scholarship – I’m not paying 70k for an English major at Swarthmore or Vassar – no offense to any grads from there, just an example!

    Take our son who hopes to be an engineer, applying next year, he could do Carnegie Mellon or RPI for 70k+ per year, or UMass Amherst at 30k per year. Or even a good out-of-state school like Purdue where the all-in cost is 45k or so… We would have to think twice if he got into an MIT or CalTech – we do think the highest of the high echelon of schools might actually carry weight of name in moving forward.

    And for those of you with really young kids, if the prediction of 500k for 4 years of private school becomes reality, I would even more strongly consider kids to look at high quality public schools and keep the differential. Or tell my kids to become electricians or plumbers and take the whole 500k in cash.

    But clearly I am a believer in that a good student will be a good student almost anywhere, and vice versa. I’ve had neighbors whose kid went to private preschool, grade school, high school and college – 18 years of expensive private education – and become a nanny/daycare worker; or on the flipside a nephew got full-ride to what I would have called a mediocre state school at best, and then went to a high level business school and now works in bond trading at Fidelity. Not that this always the norm by any means, but so much has to do with luck and perseverance, in addition to smarts and money, in generating return-on-investment with regards to education.

    Click to expand…

    I do not know why you would prohibit English, history, sociology, anthropology, or any other major or minor as long as they also develop marketable skills. Certainly many medical school matriculants have not majored in a STEM field. I majored in bio but almost completed a double major in African American studies; a few classes either way and I would have been an African American studies major with no biology major and I doubt it would have impacted my medical school choices or career in any way.

    There is value in a broad and deep liberal arts education, as long as other employable skills are acrrued during the journey.

    Click to expand…

    Point taken – it is more of a running family joke than anything. But the pragmatist in me would still chaff at group reading followed by discussion at $500 a day  😉 – although I guess that’s most of college anyway. It will be interesting to see how it all plays out in the near future in our family

    #42328 Reply
    Dreamgiver Dreamgiver 
    Participant
    Status: Physician
    Posts: 861
    Joined: 03/09/2017

    We do 4k a year per child, starting on year 0. We get a 5% state tax credit up to that amount. Plan is for the money to be enough to pay for in-state university. My wife and I are very successful in our respective fields and went to public school all along so that is how it is going to be for our kids as well. If anything is left-over, then the money can be used for professional degrees if they go down that route or the wife and I will use it for ourselves on welding, cooking, automotive classes…

    #42330 Reply
    Avatar HLM 
    Participant
    Status: Physician
    Posts: 40
    Joined: 04/01/2016

    I do think it makes sense to not shell out tons of money for a liberal arts major. And that’s coming from someone who has an undergraduate degree from an expensive school in a liberal arts major.

    I always intended on going to med school and picked a liberal arts major because I had broad interests academically and knew I’d get my fill of science once I got to medical school and thought it would be fun to explore another area in college.

    But I shudder to think what would have happened to me if I hadn’t gotten into medical school. I knew several ex-liberal arts majors who had graduated from my college who then worked for peanuts at one of the campus libraries where I worked as part of the work-study program. Or what if I had decided medical school wasn’t for me two years in? Or earlier in my career before I had paid off my med school loans? Being stuck with tons of med school loans and an undergrad degree that will yield only low paying options career wise without additional education would be awful.

    I would argue that very few well paid employable skills are accrued during most liberal arts major educational experiences. I’m not arguing that there isn’t value in such an education. Just that paying huge amounts of money for an education that will not give you much more earning potential than a high school diploma is not a smart financial move.

     

    #42403 Reply
    TheHappyPhilosopher TheHappyPhilosopher 
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    Status: Physician
    Posts: 144
    Joined: 08/04/2016

    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.

    #42404 Reply

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