Children doing own college funds?

[Lisa1970]

I came up with this idea, and think it sounds good, thought I would run it by you all to see what you think, in case I am missing a flaw here.

I have done 529's for my children toward college. There is not tons of money in there, but there is a good start. They can't go to Brown University on no aid with it, but I think it is good.

AND, my teens have been saving their money too, knowing they will need to contribute toward college too. Then it dawned on me, why not let them put money in their own 529 (I was thinking of 2nd accounts so that we can keep track of their contributions and ours, since colleges usually break that down when they make financial aid package offers, plus, if they get scholarships and college is all paid for, I want them to be able to cash out and keep whatever they saved)? If they put the money in to their own 529, since it is all tax deductable, I can just give them back whatever money was saved on taxes due to the tax deduction. So, if our taxes were $200 lower due to their contributions, I can put $200 in to the accounts that they were keeping themselves.

Does this sound like a great idea? Anyone do this? Am I missing something here where this would be a bad idea?

[One_Girl]

Can they cash out their own accounts without using it for college at all? I am not sure how the accounts work, but I suggest that you go with something that doesn't allow them to blow the money. I had complete control over my college savings when I was 18 and I blew it all within a year and a half. I had to work very hard to get my education after that and I really wish my parents hadn't given me that kind of power. For my brother they kept the accounts in their name but paid tuition and books when he went to college. He hasn't finished his degree but he likes having the security of knowing that he can when he is ready.

[Bubblette]

529s are new since I was a teenager but here is what my parents did for/with me in regards to college and retirement savings. Half of every penny I made or was gifted I handed over to my parents for college. Dad put it in a savings account. When I went away to school the sum of that savings was given to me for books/extras/my discretion.

When I got my first job I wanted to open up an IRA. My parents were so impressed with my forward thinking that they matched my contribution until iI graduated from college. So that first year I had something like $900 to put in and we together contributed $1800. A couple of years later I could hit the max myself, so I put in 1/2 and they put in 1/2.

As an aside, a friend of mine was charged "rent" for living at home as of her first pay check. Her mom put that money in an investment account and handed it back to her once she was house hunting. It was 12 ish years later and contributed over $30,000 towards a down payment.

I'll be doing both, slightly modified for my children. DH and I will be opening up an 529 for DS1 by the end of the year. Probably through vanguard as they use the Nevada one, it's one of the top ranked, and you can hook up upromise and ugift it it. We'll gently encourage family to ugift to college rather than go nuts at Christmas, birthdays etc. I will take 1/2 of everything DS makes and put it in a separate account, like my dad did - but probaby not a savings account something with a better return. I'm not sure what vehicle we'll use, but that's YEARS away. I don't know if we'll do the "rent" for down payment thing - I don't think it'll be feasible with 1/2 of his paychecks going toward college.

Now my parents helped with my first car, with tuition, and mom was know to slip me $20 for nights out with friends. The bought all my clothes (though nothing extravagant) and food until I went to college. Saving for the future, and seeing how much that lump of cash in my checking accounts, as well as watching my Roth IRA grow all instilled a really solid sense of financial responsibility. More than I think having to pay for day to day things as a teenager would have.

In your shoes I might ask for a portion of their savings for the 529 you set up, or talk with them about contributing regularly, compound interest is an awesome thing. I would definitely let them/help them open up their own accounts for college with what they have saved! It's awesome that your children are saving on their own. I would just help them find a good vehicle for the money they decided to save on their own - CDs, bonds, a 529, maybe stocks depending on how far away the are from school. I just wouldn't let it sit in a savings account JMHO.

[number572]

Not your 529 question, but I have a great amount of pride in paying for my own college education. In addition to full time school and after school work, worked a solid 40+ hour per week job in a relevant field to what my aspirations of college were, then took out student loans for the rest. It was so tough at the time, but I learned things like time management, plus it kept me from diving into the "party" mode and laziness that many of my college peers "got" to do at the time, I feel that it kept me focussed on why I was there... I saw fellow students drop out b'c their parents had paid for them in full to be there. That was sad to me, and for them, of course. Thats not what you're doing at all, paying for them entirely. But if your kids have to give and donate toward college along the way, in order to attend, it may mean more to them in the end. Kudos to you for planning ahead like this, I think its great. And best luck to your kiddos in their college endeavors!

Oh, and my parents didn't believe in giving any money toward first cars or college at all, it was more of an "if you want it, you work it out yourself and then you'll get it" situation... I have no hatred or upset at all toward my mom at all for that... my dad was killed when I was 16 so he had no participation in those choices, so, I think if kids want college, they'll be happy and willing to work for it... what you're helping them set up right now is awesome and you deserve kudos for helping them get to that goal. I wish you and your kids the best!

[Belia]

I would contact an accountant or certified financial planner to ask about the best way to set up this account.

As I understand it, 20% of your child's income or assets will count "against" them when it comes time to apply for financial aid.

However, only 5.65% of YOUR assets as the parent will count against your kid when they apply for financial aid.

Plus, the government will starting counting your kid's income and assets from dollar one- they don't get to withhold any amount of money from the financial aid formula. But the government allows you, the parent, to shelter a certain amount of your income and assets (usually equal to $1000 per year of the oldest parent's age) before the financial aid formula kicks in.

For example, let's say that your child has $100,000 of income and assets. Let's say that you, the parent, also has $100,000 of income and assets. You are 40 years old.

The government will factor in 20% of your child's money, or $20,000.

However, the government will only factor in 5.65% of your money.... PLUS you get to shelter approximately $1000 for every year of your age, or $40,000, before the government will even consider it. Therefore, your share as the parent will only be 5.65% of $60,000, which is $3,390.

You may be better off to put your kids' money in your name in a Roth IRA or something, so the financial aid formula helps you out more when it comes time to crunch those numbers. That also solves the problem of your kid blowing the money without your consent.

Just my layman's 2 cents. But worth checking out.

[karanyavel]

Probably an unpopular view but...

Personally, I wouldn't ever take any of my child's gifted or earned money and require it to be put into savings, especially not towards something specific like college. Any money my children earn or are given is their own, to do with as they choose. Certainly I would encourage them to save money -- particularly if they plan to attend college -- and I'd help them think about the best way to go about that, whether it was by putting it into a 529, a high-yield savings account, a CD, or what-have-you. But required savings? Not a chance.

Which is not to say that we'd give our kids a free ride through college, either. Our current plan is to match each of our children's savings (the ratio at which we match will depend on our income) and to give them access to all of that money on their 18th birthdays, although they could withdraw the amount they themselves contributed before then. While we would advise them to put it towards something with a good return -- college, a car, a down payment on a house, starting a business, or even world travel -- we're not going to be all that upset if they blow it, either. Honestly, if that's what they choose, then it is probably a lesson they need in what happens to money if you don't spend it wisely.

DH and I are a big believer in 18 as adulthood and would feel that we had made some serious mistakes if our kids were not prepared to move out and be adults at 18. In fact, we'd be making some serious changes if we didn't feel our kids were ready for that responsibility at 16 or 17.

We also don't believe that college should be the goal for all young adults, and frankly, both of us would rather that our kids worked and lived on their own for a few years before starting college (if they decide to go at all). We will happily support whatever path they choose in life (so long as it's legal and ethical).

I think this has a lot to do with our backgrounds, however. Neither of my parents have much in the way of education but had (and have) very fulfilling lives. My husband's parents both have Master's degrees and high-paying careers, but don't really seem all that happy or fulfilled. I moved out at 16 and was definitely prepared to "fly the coop" at that time. My father did offer to pay my way through college, but I thanked him for his generosity and declined. I've never regretted my decision to skip a college education and feel that I learned more valuable things through self-teaching and life experience than I would have by earning a degree.

My husband was pressured towards college and required to save a portion (half I think) of the money he was gifted as a child... he finally agreed to go when he was 20 but dropped out twice before it was all over. He's currently in his last semester and interviewing for jobs, and while it does look like college was the right choice for him, he resents the way his parents handled the issue (and many other things that they did "for his own good" both as a child and an adult).

Perhaps because his parents had always expected (or really, decided for him) that he would go to college right out of high school, live in a dorm, etc., he was not prepared for the real world when he moved in with me at 18 (I was 24). He had no idea how to go about renting an apartment, how to get electric and phone services, how to budget, how to cook, how to keep a home clean, etc.

But the biggest reason that neither of us would ever enforce savings for our child is based on my husband's relationship with his parents. It became more and more adversarial over the years, culminating when he moved out of his parents' home soon after his 18th birthday -- without so much as a goodbye -- and before finishing his senior year at high school. Enforcing savings was just one of many things that contributed to a huge power struggle between DH and his parents (which started while he was quite young -- certainly long before puberty). Even now, his relationship with his parents is strained.

Remember how I said he dropped out of college twice? Both times it was because his parents were contributing to his education and DH felt that he would never really be a free person until they stopped doing things for his own good, even though he was married, had a child, and lived 1,500 miles away.

I am 99% sure that I would have reacted similarly had my parents behaved like his, even though DH's parents didn't do anything that would be considered unusual today. I had one heck of a rebellious/independent streak; I still do, in fact

In any case, I'm not trying to tell anyone what to do. Only you (and your partner, if applicable) can decide what is best for your own family. But I did want to share why DH and I are making the decisions we are for ours.

Sorry for the long ramble.

Lisa1970, I think your idea is great. But if you're opening 529s in your own name that contain your teens' savings, I personally believe that they should retain full access to the money. Also, congratulations on teaching your kids the value of saving money towards goals important to them.

--K

[Tway]

I paid every penny of my university education, but then again I live in Quebec and a Bachelor degree is still pretty affordable. I think I paid about $7,500, books included. It helped that I lived at home.

Nonetheless, I took a year off school to work full-time and save up so I could pay cash each semester. I've always considered it a great source of pride to have put myself trough school debt-free. It also drove me to work hard and get good grades, since I knew the value of my education. I dang well worked enough weekends for it!

I know not all kids can save up for their education--and I realize the US has pretty hefty tuitions--but I'd definitely recommend having kids contribute to their own education. I think that is an education in an of itself.

[Belia]

Originally Posted by Tway

I paid every penny of my university education, but then again I live in Quebec and a Bachelor degree is still pretty affordable. I think I paid about $7,500, books included. It helped that I lived at home.

Nonetheless, I took a year off school to work full-time and save up so I could pay cash each semester. I've always considered it a great source of pride to have put myself trough school debt-free. It also drove me to work hard and get good grades, since I knew the value of my education. I dang well worked enough weekends for it!

I know not all kids can save up for their education--and I realize the US has pretty hefty tuitions--but I'd definitely recommend having kids contribute to their own education. I think that is an education in an of itself.

And see, my parents paid 100% of my tuition and room and board. I left college with zero debt, college or otherwise. I had the "traditional" college experience- dorms, parties, etc.

And I graduated summa cum laude with a 3.8 GPA in 4 years.

I don't feel like I missed anything by having my education paid for. I turned out to be a pretty good, responsible, person (if I do say so myself!)

I think it all depends on the individual child. With some kids my "free ride" would have been a recipe for disaster. Yet for me it was an appreciated gift that was put to good use.

[OkiMom]

I paid for all my college education through either tutoring or scholarships (I know most people don't consider that "paying for" but with the amount of work I put in to keep my grades up and apply for the scholarships it was harder than the tutoring I did later). My husband and I have discussed it and decided that of course we would help our children as much as possible (allow them to stay at home, pitch in with room/board/tuition when possible etc) it will be their responsibility to work for what they get.
That being said, I don't see any problem with helping your child plan and save for college. As long as its optional not "I'm the parent you do it because I tell you to". If they want to put money towards it or see it as a good idea then its great you want to help them figure out how. However, if they DON'T want to then its their money they are earning so I wouldn't force it. Not every high school student wants to think about college or will even go to college for that matter.

[Honey693]

Originally Posted by Belia

And see, my parents paid 100% of my tuition and room and board. I left college with zero debt, college or otherwise. I had the "traditional" college experience- dorms, parties, etc.

And I graduated summa cum laude with a 3.8 GPA in 4 years.

I don't feel like I missed anything by having my education paid for. I turned out to be a pretty good, responsible, person (if I do say so myself!)

I think it all depends on the individual child. With some kids my "free ride" would have been a recipe for disaster. Yet for me it was an appreciated gift that was put to good use.

This is what happened with me, except my GPA was only 3.5, but I did it in 3.5 years too! I am still incredibly grateful to my parents. I thank them all the time for paying for college, especially since I doubt I would have gone if I would have to pay my own way. Since they paid I went, then got a job right out of college and we used my income to knock out DH's school loans in a year. Thanks to my parents paying for my education the only debt DH and I had at 23.5 was our mortgage.

[Caneel]

I was given advice that ran along the lines of what Belia outlined, putting assets like a 529 in the child's name will likely negatively impact financial aid. Also, I think how aid is calculated differs between schools. Kipplinger's recently had an article outlining how different private schools counted (or not) assets. Some completely ignore retirement accounts, for example.

[shayinme]

Originally Posted by Tway

I paid every penny of my university education, but then again I live in Quebec and a Bachelor degree is still pretty affordable. I think I paid about $7,500, books included. It helped that I lived at home.

Nonetheless, I took a year off school to work full-time and save up so I could pay cash each semester. I've always considered it a great source of pride to have put myself trough school debt-free. It also drove me to work hard and get good grades, since I knew the value of my education. I dang well worked enough weekends for it!

I know not all kids can save up for their education--and I realize the US has pretty hefty tuitions--but I'd definitely recommend having kids contribute to their own education. I think that is an education in an of itself.

My son is a freshman in college in the US right now and it's pretty hard these days for any kid to pay their way unless they are possibly at a state school (even in my state its 18K w/room & board and its 3hrs from our house). Or a community college but now thanks to the economic downturn even they are not the sure thing they used to be. In my state some programs have 3-4 year waiting lists for popular programs like nursing.

My son was fortunate to get some fairly substantial scholarships which of course require keeping his grades up, he also has taken out 1 small loan. Even still we were left with a balance of $8500 to be paid and considering he is at a private college this is a great deal. His current schedule leaves little time to work and even if he did a minimum wage paying job after you factor in gas money would not make a huge dent in that bill since that is only for 1 year.

I will also say as someone who was married at 18 and pregnant at 19, that my experience in having an 18 yo in college right now is that the school does not see him as an adult. So even when you the parent say hey he's a legal adult colleges don't which is why to even apply for financial aid the child has to submit the parents financial information even when Mom and Dad don't plan on paying. I have actually known folks in the past decade who had to delay attending school because parents were not willing to do that and the school did not see them as independent students.

I agree with Belia that you need to talk to someone who deals in financial matters to get the best idea on how to set up these accounts. Though as someone who figured my kid would figure out a way to go to college and didn't plan I will say I very much regret that now. Especially because I put myself through school in my late 20's and early 30's and racked up a great deal of student loan debt.