moneymaven
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Post by moneymaven on May 25, 2011 13:46:54 GMT -5
DH and I had our first son on March 1st. We're starting to plan for college. Our state offers a 529 college savings plan. Here is the link to their information: www.collegeinvest.org/What should I consider when planning how to invest the funds? How would you invest the money? I hope Phil is around...
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NomoreDramaQ1015
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Post by NomoreDramaQ1015 on May 25, 2011 13:51:00 GMT -5
I did DD's like I did my retirement, I chose the age based package rather than trying to pick my own investments. Right now it's set to invest aggresively about 90-85% of the funds I put into the account and it'll become increasingly more conservative the closer she gets to 18.
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Post by Savoir Faire-Demogague in NJ on May 25, 2011 13:53:12 GMT -5
I have a plan for my six year old grandson that I started 18 months ago. It is with the NY State plan and I have it invested in the option offered for a 15 year horizon. You did not say what state you are in, and many of the other state plans allow participants not domiciled in the state to get into the plan. In any event, for a newborn, you would be thinking very aggressive growth, which would be 90-95% equities.
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moneymaven
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Post by moneymaven on May 25, 2011 13:56:43 GMT -5
SF, I am in Colorado.
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lynnerself
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Post by lynnerself on May 25, 2011 14:17:30 GMT -5
Yes, I think a "target date" fund is a good Idea. We got hurt in the market downturn because we were too heavily in stocks when our kids were in high school. I'd love to have been in Colorado. It looks like you can deduct all of your investments off your State income tax. www.collegeinvest.org/tax-benefits/•Tax-deductible contributions for Colorado taxpayers If you are a Colorado taxpayer, you may deduct all your annual contributions to the 529 plan from your Colorado State taxable income. However, deductions are subject to recapture in any subsequent tax years in which you make non-qualified withdrawals. If you are still in Colorado when your child goes to college, you can run as much of your costs through the plan as allowable. Even if funds are not in the account long enough to earn much, you will still get the tax deduction.
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Post by Savoir Faire-Demogague in NJ on May 25, 2011 14:59:10 GMT -5
A target date fund, or as many 529 plans refer to them, age base appropriate funds are the simplest way to handle this.
There is really no point in making this sort of investment complicated, in my opinion.
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973beachbum
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Post by 973beachbum on May 26, 2011 7:43:34 GMT -5
My first thought is that you should think long and hard before putting money in a college saving account like that.
Do you really have all your savings and investments set for everything you and your spouse will need? You have a home, a good EF, retirement investments, and a regular savings?
this is one of those things that I think a lot of parents do when they have a child. They put the kids needs ahead of their own and put money in the kids name for college. IMO the best thing a parent can do to insure the future well being of their children is to make sure they are in the best place financially possible so that when they time comes they are able to help.
Just my 2 cents. ;D
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moneymaven
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Post by moneymaven on May 26, 2011 12:09:20 GMT -5
973 - good point. We aren't going to aggressively start saving right now, but put a small amount in every month. We could of course increase it as he gets older, or we have more children. I want a place to put his birthday money, etc.
We do have an EF, both contribute to retirement and have since we were both 21, and contribute to regular savings.
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Gardening Grandma
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Post by Gardening Grandma on May 26, 2011 14:37:27 GMT -5
973 - good point. We aren't going to aggressively start saving right now, but put a small amount in every month. We could of course increase it as he gets older, or we have more children. I want a place to put his birthday money, etc. We do have an EF, both contribute to retirement and have since we were both 21, and contribute to regular savings. I think it's a good idea, esp if the idea is to set aside a small amount. You can let the g'parents, doting aunts/uncles know that contributions are welcome too. I did it a little differently for my g'kids, but it was because I waited until they started middle school. I do wish I'd started when they were very young. I'd have selected a target fund and put it on auto pilot. My sis and BIL live in CO and they use the state's 529 plan for their grandkids. They like it a lot.
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phil5185
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Post by phil5185 on May 26, 2011 15:17:29 GMT -5
You'll start pulling money in 18 yrs, some of it stays for 22 yrs - so the time period is slightly short for a 100% longterm stock allocation. I would probably pick the Growth Fund (the third from the top), it is 75% stocks, 25% bonds, the stocks include both domestic and international. If you invest $3000/yr it should be about $150,000 in 18 yrs.
But heed 973BB's warning - a 529 is irreversible so don''t put everything there just to get a 15% tax break - put some in a taxable account that grows tax deferred (index fund) but is instantly available to your family if life happens.
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Post by Savoir Faire-Demogague in NJ on May 26, 2011 15:33:36 GMT -5
But heed 973BB's warning - a 529 is irreversible so don''t put everything there just to get a 15% tax break - put some in a taxable account that grows tax deferred (index fund) but is instantly available to your family if life happens.
You can also change beneficiaries, and also name yourself as a beneficiary. Point taken though.
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Deleted
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Post by Deleted on May 26, 2011 17:50:59 GMT -5
Everyone keeps saying, "Don't save for your kids' education. Save it for your own retirement."
A true conversation I had when my daughter was in college.
Me: Why am I paying for your college education again? You are going to put me into a nursing home in my old age. Daughter: But don't you want it to be a NICER nursing home? I heard the rats can be rather bad . . .
Before anyone jumps on me, that's our family humor. But it does make an important point. You want your kids to have better lives than you had, even if it's for selfish reasons.
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phil5185
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Post by phil5185 on May 26, 2011 18:58:59 GMT -5
"Don't save for your kids' education. Save it for your own retirement." The key factor is - when you don't have enough money, it is easy to get inexpensive, long term loans for your kid's college. But you cannot get a loan for your retirement, lenders cannot make loans to people that don't have jobs.
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happytraveler
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Post by happytraveler on May 27, 2011 7:26:52 GMT -5
You'll start pulling money in 18 yrs, some of it stays for 22 yrs - so the time period is slightly short for a 100% longterm stock allocation. I would probably pick the Growth Fund (the third from the top), it is 75% stocks, 25% bonds, the stocks include both domestic and international. If you invest $3000/yr it should be about $150,000 in 18 yrs. I think putting the moey into equities (or a 75/25 mix) is fine for this period of time. I do think it is unlikely that you will accumulate $150,000 however. If you net a 10% return after taxes every year you will end up with $150,000 after 18 years, but as your child gets closer to college, it would be prudent to scale your equity position back; in general, any capital you will need in within 5 years should not be in equities. As a result, this will lower returns in your later years, thus reducing the amount of money available. While the market may average 10% per year, it is an average---and all it takes is one really bad year when your son/daughter is 16 or so, to wipe out years of gains. The other issue is that college costs have historically increased about 1-2%/year above the general rate of inflation. Assuming that continues (and it may not) your $150,000 will not buy as much tuition as you would expect. The other issue I would mention is that while there are no gurantees, I would make judicious use of 529's and/or education IRAs. My own speculation is that future tax rates on income, dividens, and capital gains are only going to go up. To the extent they do, these accounts become more valuable for saving for college. They accounts do have some flexibility--if you have more than one child, you can (as was mentioned above) change the beneficiary, and for 529 purposes, education expenses are treated liberally---it is not just college tuition. So if your don/daughter decides to go to cullinary school, you can use the money for that.
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telephus44
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Post by telephus44 on May 27, 2011 8:00:50 GMT -5
We have ours in a Target fund. We live in MA, so there is no state tax break for contributions. We started at $100 a month, and increase that 10% every year (right now we put in $146). I don't plan on having enough to pay for 4 years at a private university, but it should help a bit. Retirement does come first for us. My other concern is that DS is autistic, and quite frankly, figuring out what he'll do in regards to higher education is totally up in the air at this point. So I really don't want to shovel away a ton of money I can't use without penalty.
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973beachbum
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Post by 973beachbum on May 27, 2011 8:03:24 GMT -5
But heed 973BB's warning - a 529 is irreversible so don''t put everything there just to get a 15% tax break - put some in a taxable account that grows tax deferred (index fund) but is instantly available to your family if life happens.You can also change beneficiaries, and also name yourself as a beneficiary. Point taken though. But money put in a child's name for a 529 is counted differently for financial aid than if it were in the parents name. My local grocery store is filled with cashiers and such that are former professionals who lost their jobs and never found a comparable one to replace it. If my life works perfectly then I can use the money saved in my name whether in an IRA/ROTH etc or a regular investment account to pay for my kids college. I could even have my child take out a cheap interest Fed SL and pay the bill for them while keeping my money invested longer. Proud of me for starting to think like that Phil? But if I end up like the cashier at Foodtown I would rather have the money in an IRA with my name on it that the financial aid guidelines would not account at all than in a 529 in my kids name, which must be used for education expenses, and that financial aid would insist be counted and used 100% for my kids college before they would help at all. I can still take money out of an ira and use it to fund my kids/gkids college without paying a penalty for early withdrawal. I am not saying that I will not help my kids with college expenses. My DD will be a soph in HS soon. This may make me a bad person to some, but, to use the crashing airplane example, I made sure to put the oxygen mask on us before we had to try to put it on our kids. Now that I know that I am not going to pass out it is much easier to work on putting the mask on her.
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NomoreDramaQ1015
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Post by NomoreDramaQ1015 on May 27, 2011 8:06:03 GMT -5
Me: Why am I paying for your college education again? You are going to put me into a nursing home in my old age. Daughter: But don't you want it to be a NICER nursing home? I heard the rats can be rather bad . . . ![](http://i239.photobucket.com/albums/ff155/JiminiChristmas/smileys/1-1.gif)
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happytraveler
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Post by happytraveler on May 27, 2011 8:53:12 GMT -5
But heed 973BB's warning - a 529 is irreversible so don''t put everything there just to get a 15% tax break - put some in a taxable account that grows tax deferred (index fund) but is instantly available to your family if life happens.You can also change beneficiaries, and also name yourself as a beneficiary. Point taken though. But money put in a child's name for a 529 is counted differently for financial aid than if it were in the parents name. My local grocery store is filled with cashiers and such that are former professionals who lost their jobs and never found a comparable one to replace it. If my life works perfectly then I can use the money saved in my name whether in an IRA/ROTH etc or a regular investment account to pay for my kids college. I could even have my child take out a cheap interest Fed SL and pay the bill for them while keeping my money invested longer. Proud of me for starting to think like that Phil? But if I end up like the cashier at Foodtown I would rather have the money in an IRA with my name on it that the financial aid guidelines would not account at all than in a 529 in my kids name, which must be used for education expenses, and that financial aid would insist be counted and used 100% for my kids college before they would help at all. I can still take money out of an ira and use it to fund my kids/gkids college without paying a penalty for early withdrawal. I am not saying that I will not help my kids with college expenses. My DD will be a soph in HS soon. This may make me a bad person to some, but, to use the crashing airplane example, I made sure to put the oxygen mask on us before we had to try to put it on our kids. Now that I know that I am not going to pass out it is much easier to work on putting the mask on her. With regard to finanical aid, 529's assets held in the parent's name are only assessed at a maximum of a 5.64% rate in determining a family's expected finanical contribuion. (Reference: www.savingforcollege.com/intro_to_529s/does-a-529-plan-affect-financial-aid.php)In other words, typically you would not be required to spend down all of your 529 assets prior to being elligible for any need-based aid.
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973beachbum
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Post by 973beachbum on May 27, 2011 9:09:45 GMT -5
Agreed Happyscooter but that is as long as it is in the parents name and not the child's. I still like the flexibility of having the money in an IRA that I can use for anything when I get old. Being able to go to college in my later years, if my kids don't use it all, is nice being able to pay the rent or buy groceries if I need it for that is nicer. ;D
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Post by Deleted on May 27, 2011 9:19:49 GMT -5
Agreed Happyscooter but that is as long as it is in the parents name and not the child's. I still like the flexibility of having the money in an IRA that I can use for anything when I get old. Being able to go to college in my later years, if my kids don't use it all, is nice being able to pay the rent or buy groceries if I need it for that is nicer. ;D Can you even have a 529 with the child as the owner?? I don't think that's possible. edit: Never mind. Looked it up. No they can't. Most 529 plans are available to any U.S. citizen or resident alien of legal age who wants to open an account.
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lynnerself
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Post by lynnerself on May 27, 2011 10:09:52 GMT -5
Before there were 529 plans we planned on using our Roth IRA as a savings for college. We could get the tax benefits but then take all or part of our contributions out for college with no penalty. And if the money wasn't needed for college it would be there for retirement. The main reason we switched to the 529 is because of the state income tax deduction . We still only funded it to the max amount allowed for the deduction. ETA I kept mine in my name for 2 reasons. 1. Flexibility to change beneficiary to other child or ourselves 2. We continued to contribute even after the kids were in college to obtain the tax deduction.
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NomoreDramaQ1015
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Post by NomoreDramaQ1015 on May 27, 2011 10:14:05 GMT -5
The way ours is set up is the funds becoem DD's once she turns 18. Right now I am the owner of the account with DD as beneficary. If something happens to me DH becomes the owner of the account. I think either my dad or DH's dad is number 3 on the list right now in case something happens to both of us.
I don't plan on ever telling her the funds become hers. I don't plan on hiding the funds, but I am going to let her assume that they are still mine when she turns 18.
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lynnerself
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Post by lynnerself on May 27, 2011 13:39:11 GMT -5
But money put in a child's name for a 529 is counted differently for financial aid than if it were in the parents name.Apparently not anymore: www.savingforcollege.com/intro_to_529s/does-a-529-plan-affect-financial-aid.php529 plans held by parents or other non-beneficiary A 529 account owned by a parent for a dependent student is reported on the federal financial aid application (FAFSA) as a parental asset. Parental assets are assessed at a maximum 5.64% rate in determining the student's Expected Family Contribution (EFC). 529 Plans owned by the student Beginning with the 2009-2010 school year, student- and UGMA/UTMA-owned 529 accounts are to be reported as parental assets, if the student files the FAFSA as a dependent and has to include parent assets and income. This treatment confers a financial aid benefit as the parental rate of 5.64% is considerably less prejudicial than the 20% rate on non-529 assets owned by the student.
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yogiii
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Post by yogiii on May 27, 2011 13:49:08 GMT -5
ins - My state doesn't offer any breaks so I went with the Utah plan because it is done through Vanguard. We actually haven't made any contributions yet from our money but we put the money he got at birth and for his first b-day in there. I'm not sure if we will make reg contributions ourselves. I think I'd rather keep our money in taxable accounts and then just use some of that for college.
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