moneymom
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Post by moneymom on Nov 13, 2015 15:47:19 GMT -5
After a long time of thinking 529's were not a good idea for us, I finally am contributing. How should I determine how much to save? Here's things I need to consider: - DD may not go to college or trade school (yes I realize you can transfer $ to another family child)
- Not sure if DD would go to community college first, public or private school, or no school
- Of course we are fully funding retirement before adding to 529
- DD has a savings acct she inherited (not really inherit but similar). This can be used for college too.
- DD has a unique situation that will allow her to apply and possibly receive scholarship money.
With that said, I'd love to come up with a monthly $$ amount to make automatic contributions. I have no idea how to come up with that number. We have the $$ to save now, however we can also build our own savings beyond retirement.
ETA: HOLY CRAP! I just tried a 529 calculator and it says I would need to save $650 a month. I guess I just need to find a number we are comfortable with. Maybe $100 lol. One more question though.. I've worked in Universities. And some allow for free education for children. What if that happens and DD doesn't need the 529 for that reason? Would I get penalized to take it out? I'm hoping that we would apply it to grandchildren in the future however I don't know if we will have any grandkids. Or if any urgent need for the money may arise for us.
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midjd
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Post by midjd on Nov 13, 2015 15:57:27 GMT -5
What state are you in (or purchasing the plan in)? A lot of the contribution calculation depends on what kind of tax incentives are available -- plus the penalties if you withdraw funds for non-educational purposes. For example, my state gives a 20 percent income tax credit for up to $5K in contributions (max $1K credit). Other states give nothing. My state will allow you to withdraw funds for non-educational expenses (or just for personal use) in certain circumstances and only pay income taxes on the withdrawn amount, while others will slam you with an additional penalty whenever the funds are used for anything but tuition/fees/room & board. If you're not getting any tax credit and there are substantial restrictions on using the funds for non-educational expenses, another savings vehicle might give you more flexibility. I think it varies by state/plan. For my state, you're allowed to withdraw the total amount of any scholarships received and just pay ordinary income taxes on that amount. I'm hoping DD gets a good scholarship so I can use her 529 money for a vacation and a nice car.
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moneymom
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Post by moneymom on Nov 13, 2015 16:00:17 GMT -5
What state are you in (or purchasing the plan in)? A lot of the contribution calculation depends on what kind of tax incentives are available -- plus the penalties if you withdraw funds for non-educational purposes. For example, my state gives a 20 percent income tax credit for up to $5K in contributions (max $1K credit). Other states give nothing. My state will allow you to withdraw funds for non-educational expenses (or just for personal use) in certain circumstances and only pay income taxes on the withdrawn amount, while others will slam you with an additional penalty whenever the funds are used for anything but tuition/fees/room & board. If you're not getting any tax credit and there are substantial restrictions on using the funds for non-educational expenses, another savings vehicle might give you more flexibility. yes, no tax credit. It's in CA. I added to my post just as you posted. I think part of the reason I want the 529 now is that it makes it clear we always expected she'd go to college and it may help her mindset knowing this growing up. Had my parents had a 529 plan for me and always mentioned it, I think my education would have had a better outcome. I know we can just put money in the market and earmark it towards education but I somehow don't feel the same about it. Everyone I know who has done that seem to have some type of "emergency" come up that they blow the money with.
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Deleted
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Post by Deleted on Nov 13, 2015 16:04:43 GMT -5
My advice is forget the calculators and do what you can after fully funding your own retirement. FWIW, they said I should be doing something like $500/month when my 13 year old was born and he already has enough to cover 3 years of in-state tuition doing just $100/month, so even a small amount can add up over time.
As far as the free tuition goes. It's considered a scholarship and you could withdraw an amount equal to that penalty free. Plus, there are still a ton of expenses with free tuition. You have books and room and board which are eligible expenses. Even if the child is living at home you can withdraw a certain amount for room and board.
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gooddecisions
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Post by gooddecisions on Nov 13, 2015 16:16:43 GMT -5
I save $500/month for each kid starting at birth (or technically a month later when I have their SSN) with the hopes that I'll be able to back off well before they reach college age. Our 401(k)s are maxed and investment funds are healthy for emergency, job loss or whatever. If we have a budget crisis, this would be the first to reduce. But for now it works.
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moneymom
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Post by moneymom on Nov 13, 2015 16:25:39 GMT -5
I save $500/month for each kid starting at birth (or technically a month later when I have their SSN) with the hopes that I'll be able to back off well before they reach college age. Our 401(k)s are maxed and investment funds are healthy for emergency, job loss or whatever. If we have a budget crisis, this would be the first to reduce. But for now it works. I love the idea of contributing more now and cutting back later. At least the money would have more time invested funding it early. Do you assume you would be paying for housing along with their college?
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gooddecisions
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Post by gooddecisions on Nov 13, 2015 16:32:30 GMT -5
I save $500/month for each kid starting at birth (or technically a month later when I have their SSN) with the hopes that I'll be able to back off well before they reach college age. Our 401(k)s are maxed and investment funds are healthy for emergency, job loss or whatever. If we have a budget crisis, this would be the first to reduce. But for now it works. I love the idea of contributing more now and cutting back later. At least the money would have more time invested funding it early. Do you assume you would be paying for housing along with their college? Yes, my parents paid 4 years in state tuition, room and board for me and my sisters and I'd like to pay it forward if I'm able. But, I also chose the most affordable in state college- Virginia Tech. So, we'll see if I can raise reasonable kids with reasonable expectations.
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Deleted
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Post by Deleted on Nov 13, 2015 17:23:21 GMT -5
I don't think assuming that your daughter won't go to at least community college or trade school is a real consideration. She is going to need training of some sort to get any type of decent job. However, you mention she has a "unique situation that will allow her to apply and possibly receive scholarship money." Since all students can apply and possibly receive scholarship money, the only thing I could imagine is that it sounds like she perhaps qualifies under vocational rehab or something similar. That may change your needs dramatically.
I've been trying to talk with my students about the savings that a CC can provide. You still end up with a diploma that reads University of Alabama or Auburn University if you transfer and finish there. I hate to see them mortgage their futures.
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cktc
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Post by cktc on Nov 13, 2015 17:46:50 GMT -5
I'm currently thinking I'd like to save $100/month/child. I know it won't cover 4 years at a prestigious university, med school, or a 7 year party school bachelors, but combined with merit based scholarships or military service they should have a nice head start.
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moneymom
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Post by moneymom on Nov 16, 2015 0:04:02 GMT -5
I love the idea of contributing more now and cutting back later. At least the money would have more time invested funding it early. Do you assume you would be paying for housing along with their college? I took this to an extreme.
I calculated what I thought college plus room, board, books, fees would cost in 18 years.
I then decided I wanted to have 2 years worth ready (the rest would be figured out at the time).
so i got a number, of what i'll need in 2030 to send a kid to state school for two years.
Then, i assumed an 8% investment return, compounded over 18 years and put that amount in a 529 and invested in low cost index fund tracking the S&P500
The amount (based on my assumptions!) was about $14k/kid to put in at birth, that would pay for two full years in 18 years. I don't add to college savings unless they get cash gifts, in which case i add them to the account, match it, and invest it in the same fund.
YMMV
This is awesome!! I'm jealous!
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Ryan
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Post by Ryan on Nov 16, 2015 16:03:12 GMT -5
From what I've heard, a good/realistic approach is to save 33% for college, pay 33% out of cash flow, and then have your kid borrow for the other 33% (or get a scholarship). I'm aiming for 66%-100% saved for all 3 of my kids and I'm front-loading the money; i.e. I'm saving more than is required now and will backoff later.
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