Saving for your kids' education

[marsupial]

OK, I am just now starting to think about saving for my kids' education. Yes, my oldest is pushing 10 and it is just now crossing my mind. Anyway, what do y'all do? What seems to be the safest and smartest way to put away money for your kids' education?

[pellegrino]

My wife and I have designed a new bumper sticker that reads "We're not saving for their education, we're saving for therapy." Funds raised from the sales will go directly towards . . .

[Uncle Ted]

OK, I am just now starting to think about saving for my kids' education. Yes, my oldest is pushing 10 and it is just now crossing my mind. Anyway, what do y'all do? What seems to be the safest and smartest way to put away money for your kids' education?

Look into 529 college saving plans. The growth is tax free but your mileage will vary on the details by state, etc.

[creekster]

We used a 529 for our oldest but not the other two. I have no idea why. My wife makes all those decisions (I am not joking about that, btw). I know my youngest was set up with some sort of drip stock purchase account that my wife intended to use to teach him about stocks and dividends and what not but it turned out to have done incredibly well.

As I read this back I realize it is not very helpful at all. Sorry.

[CardiacCoug]

We have a 529 plan for each kid.

In Utah you get 5% of your contribution (up to $174 on a max of $3480 per year) back on your state tax return and all the earnings are tax-free as long as you use them toward educational expenses.

[PaloAltoCougar]

We didn't use 529 accounts for the first five, but did so for our youngest. In addition to the annual limitation to which CC refers, one can put a very large lump sum in, but that limits your ability to add more during the ensuing years. We did that for our youngest and it's nice knowing that, barring a total market collapse, his college education is fully paid for. The 529 account is the way to go.

[Paperback Writer]

Using a 529 should be part of it as Uncle Ted already suggested. I'd also have alternate savings to supplement and give additional flexibility. For instance, my family uses a couple of 529 funds to save for 4 kids' colleges (names can be changed on 529 plans so a younger sibling can be named once an older sibling graduates). Anyway, the reason to have alternate savings is that one might not want to sell (withdraw) 529 funds when the market is down. So alternate savings can be used while the 529 recovers.

The disadvantage to this approach is that alternate savings probably are not growing tax free like a 529 plan. However, alternate savings can be used for anything - not just college for which a 529 is dedicated. Another option is to have a 529 for each child and then re-balance the 529 away from stocks as the time for the kid to go off to college gets close.

Good luck on saving for your kids' college.

I wonder if the size of families in our culture would be influenced if parents had an accurate price tag or bill for the cost of kids. Not just cost of the actual birth but costs from birth through college. At one time, the largest monthly cost for my family was childcare - it exceeded our mortgage payment. And now that my oldest is in college with his siblings soon to follow, I've calculated that our college costs for four children may exceed the total of all of our mortgage payments for our house (not the initial cost of the house but what we've payed to our mortgage lender over the length of our loan).

[RC Vikings]

Teach him how to throw a ball and pray for a scholarship.

[falafel]

What if you have 529s but don't end up using all of the money after your kids have graduated? Can you withdraw the money and take the tax hit? I'm assuming you don't have to forfeit it.

[PaloAltoCougar]

...Does BYU participate in any 529 plans? They didn't when I started my oldest son's EduIRA. But that may have changed.

The nice thing about 529 plans is that they can be used for pretty much any institution of higher learning. The only variable is which administrator to use and the state where that administrator's program is located. Because a California-based plan wouldn't have helped me from a tax perspective, I went with Schwab's 529 program which I think is based in Kansas. But we can use the plan anywhere.

Prospective 529 investors should check to see if their home state 529 plans gives them any tax advantages. As CC noted, Utah residents get a small benefit from investing in that state's program.

[byu71]

Some excellent thoughts. I love the flexibility of the 529 allowing you to take the money back if you decide not to doll it out. Also you can switch it to someone else. If you take it back you get taxed, but you would have anyway.

So many knowledgeable people concerning the financial world on here. I feel my work is almost done and can move on to a more ignorant site.

[PaloAltoCougar]

What if you have 529s but don't end up using all of the money after your kids have graduated? Can you withdraw the money and take the tax hit? I'm assuming you don't have to forfeit it.

I think the answer to your question is yes, but you can always leave it intact, let it grow tax-free for years, and then use it for grandkids or your much younger mistresses.

[il Padrino Ute]

Teach him how to throw a ball and pray for a scholarship.

Yep.

[mUUser]

What if you have 529s but don't end up using all of the money after your kids have graduated? Can you withdraw the money and take the tax hit? I'm assuming you don't have to forfeit it.

If I recall, it's a 10 percent federal penalty on top of the tax rate. The state may charge something as well.

[falafel]

I think the answer to your question is yes, but you can always leave it intact, let it grow tax-free for years, and then use it for grandkids or your much younger mistresses.

Perhaps an unexpected love child.

Thanks.