college savings plans

[llwr]

Is there anything I need to know about college savings plans beyond the basic FAQs? I'm trying to get something set up for my girls (1 and 3). I do want something specifically for them (rather than using money from a roth IRA, for example), so if grandparents, etc want to give them a bigger gift, but we're already overflowing with toys, they'll have a place to do that.

I'm great at saving, but investing confuses me.

For example, I found a blurp in the Reader's Digest that says roth IRA's are better because the contributions can always be withdrawn without penalty and most schools don't count the money in the retirement accout when assessing the financial aid offered.

But my state (Ohio) offers a state income tax deduction on contributions to their 529.

So which is better? Am I overthinking this?

And I definately don't want to get tricked into draining my retirement when most college loans are a good deal, as far as loans go.

I do know that the account should be in a parent's name with the child as the beneficiary. It's supposed to count less than 6% of the value of the account that way rather than 20% if the child was the owner.

I guess I want to open a 529 plan for each of them regardless, but I don't know where I should be placing the bulk of the money I plan to use for them.

I'd appreciate any insights.

[cschick]

Originally Posted by llwr

Is there anything I need to know about college savings plans beyond the basic FAQs? I'm trying to get something set up for my girls (1 and 3). I do want something specifically for them (rather than using money from a roth IRA, for example), so if grandparents, etc want to give them a bigger gift, but we're already overflowing with toys, they'll have a place to do that.

I'm great at saving, but investing confuses me.

For example, I found a blurp in the Reader's Digest that says roth IRA's are better because the contributions can always be withdrawn without penalty and most schools don't count the money in the retirement accout when assessing the financial aid offered.

But my state (Ohio) offers a state income tax deduction on contributions to their 529.

So which is better? Am I overthinking this?

And I definately don't want to get tricked into draining my retirement when most college loans are a good deal, as far as loans go.

I do know that the account should be in a parent's name with the child as the beneficiary. It's supposed to count less than 6% of the value of the account that way rather than 20% if the child was the owner.

I guess I want to open a 529 plan for each of them regardless, but I don't know where I should be placing the bulk of the money I plan to use for them.

I'd appreciate any insights.

The biggest problem is, we don't know what the financial (aid) landscape is going to be like when our kids are going to college. In the decade since I've graduated, it's changed dramatically, and may change again.

We sat down with a financial planner and decided that the best plan for us was to max out all our retirement funds before considering a 529. So, we max out contributions to two 401(k)s and two Roth IRAs each year. We don't really have any money beyond that, but will in a few years (when the kid isn't in a preschool/daycare that costs $1100/month, which is pretty typical around here.) Once that money is freed up, we will be also investing it, although not necessarily in a 529.

I don't like 529s myself, because there's no guarantee that the rules that exist on them NOW will exist on them in the future. When I went to college, 75% of any monies in my name were expected to be used for freshman year school tuition/fees, which meant that I was basically hosed for financial aid purposes. My husband experienced the same. That leads me to NEVER put monies for college into my kid's name. Even in a 529 or a "semester purchase" program. I expect to see those programs go bust before the kid reaches college.

[texmati]

honestly, i feel the same as pp.

I would max out any retirement tax shelters before looking towards college geared accounts. If you are eligible for a roth ira, I would def max them out. And I would think very very hard before putting any money into my childs name, *or* even into an account that needs to be used for college.

My state doesnt have an income tax, so that draw to investing in a 529 isn't there. I"m interested to hear what other posters have to say.

[sunnysandiegan]

We also do not have any accounts specifically for college. We are ONLY eligible for IRAs, though, so those are definitely earmarked for OUR retirement. However, we save money in non tax-sheltered places in our names that can be used for a wide variety of uses down the road. That money is loosely earmarked for our DD's higher education in ten years and we contribute monthly.

Furthermore, we plan to have our mortgage paid off by the time she goes to college and then the flexibility of that monthly dollar amount will open up new doors.

I was an independent student when I went to college (not under parent's tax status for several years). I ended up going to an expensive private university because I received grants and scholarships to cover all the tuition and books. Whereas a cheaper public university was going to cost me more out of pocket each term AND it would have taken me at least a year longer to get my degree due to so many students competing for the same classes.

The financial aid calculations are different for different types of students (classifications). This is something to really think about and plan in advance. I forget all the percentages right now and it has probably changed anyway, but the gist of it was: 90-100% of a dependent students assets were expected to go towards their own college education and a much, much smaller amount (2-5%???) of the parents liquid assets were also expected to kick in before financial aid would be considered. Independent students were treated differently and the rules for such were rather strict.