College Savings

[taubel]

Curious about what everyone does if they're trying to save for college (for their children). 

We have three children (all 9 and under), but do not contribute to a formalized college savings program.

Whatever money the kids receive as gifts (and they often get monetary gifts from relatives), we put into our regular investments, which are in very safe bonds, etc. We can use this money for education, I believe. (DH is in charge of this, so I don't have all the details). 

I'm wondering if we should contribute to something specifically geared toward education?

Any opinions?

Thanks!

[GirlBoyGirl]

You could start a 529 plan. We opened one for each of our 3 kids upon their birth. Each state has 1+ plan that you can choose, but you do not have to choose your own state's plan. For example, we live in Delaware but went with Ohio's 529 because it is a top-rated plan. But some states give you a tax break for choosing your own state's plan, ours does not so we shopped around. I like that with a 529, the money is invested more aggressively in the beginning but as your child nears college age they invest it more safely.

http://www.savingforcollege.com/intro_to_529s/what-is-a-529-plan.php

[Smithie]

We have a NY 529 for each child, and they're working out very well so far. I like how I can divvy up our surplus and gifts from relatives now to create an equal share for each kid. Also, our changing priorities over time (if we divorce, etc.) wouldn't affect these accounts - they belong to our children, are administered by me with control passing to their Dad in the event of my death, and they wouldn't even be on the table as a marital asset if we broke up. 

[TiredX2]

We also have 529 plans for each child.  They won't pay for *that* much (because of the amount we are putting in) but we are on track to pay off our mortgage before our DD enters college (cross fingers, it depends on when she goes, lol) and we will then use that money towards college as well.

While we have been investing for them since birth, I knew even at the time that isn't actually the *best* financial plan.

From what I have read, you should prioritize savings in the following order:

1. 401k to get full match

2. Roth IRA (if qualified)

3. Max 401k

4. College Savings

The theory is that you can remove money from your Roth IRAs without penalty for educational purposes, but it can't move the other way (and once the year is past, you can't save for that year again).  While I knew this, and it does make sense, we just felt really strongly about starting designated college funds.

Money that our children recieve for gifts is put into their personal money.  I could imagine putting it in their 529s but never in my personal investing money.  BUT, my kids don't recieve hundreds or thousands of dollars in $ yearly.  They pretty much spend what they recieve, lol  (actually, DD has over $500 saved at this point and DS over $100 but still--- amounts for a child to spend).

[Maluhia]

I agree that the priorities should be:

1. 401k to get full match

2. Roth IRA (if qualified)

3. Max 401k

4. College Savings

For us, that means that (since we get no 401K match) we max out both of our Roth IRAs, have marital investment in addition (mixed risk investments) and a 529 and UGMA for our daughter.  So that means that because we are under 50 years old we will put 5K each into our ROTH IRAs this year, then additional investment into our mutual funds AND into our College Savings for DD.  I’d say now that we are debt free (thanks DR!) we put away about 1/3 of our income into investments including our ROTHs, Mutual Funds, Life Insurance, 529s and UGMA. In addition we save 1/5 of DH’s salary yearly in a money market savings account towards a future down payment on owning a home (we move too often due to work to buy now). 

[JesKace]

I don't feel we are in a position to save anything for our children's college right now.  We are still paying on credit card debts that we owe.  First and foremost I want to get those paid off.  We did start investing a small amount into DH's 401k last year because we kept putting it off till our debt was paid, and it seems as though it won't be completely paid for another couple years.  I now regret not putting a little in over the past 8 years we could have contributed.  So I'd rather contribute a small amount over these next couple years and then increase it when our debts are paid.  Once the debts are paid, we will try to max out on DH's 401K, then possibly open an IRA for me and try to max out on that too.  Once we're doing that if we have the extra money we will put money aside, we'll put it in college funds for the kids.  I'm hoping that our children will go to a vocational school and that will help them decide what field of work they'd like to go in, hopefully reducing or avoiding the cost of college.  I refuse to pay for my children to go to college and not have an idea of why they're going to do.  I've seen too many of my friends/family accrue debt because of college degrees that are essentially useless for getting jobs in the real world.  DH and I both went to vocational high school and DH has been working in his field for 10+ years now and makes us a great living with no college degree :)

[redvlagrl]

We are not saving towards college for our kids.

I would rather focus on paying down our debts (student loans, lol) and mortgage first. If we had our house paid off by the time the kids reach college (which we should) then that would free up enough money to pay for it as we go without us incurring more interest on debt.

I also don't really believe in paying completely for your child's education. I think that it can create an expectation of entitlement. Our kids will also have other cheaper options such as studying in Australia or here in Canada.

[taubel]

Thanks for everyone's help. We are already contributing to 401ks. We'll look into the Roth IRA. We do have several thousand dollars given to the kids by my in-laws just sitting in a low rate savings. We are a little bit afraid to invest in much these days. But maybe the Roth would be the right vehicle for this money? 

Thanks!

[jimblejamble]

My father-in-law started a 529 for Jude last Christmas that our relatives donate to. My mom will donate a little bit here and there for the holidays--$10 at Easter, $5 at 4th of July, a few bucks for his birthday in addition to a gift, etc.

[Birdie B.]

We also set up a 529 for our daughter, and will for future kids.  We contribute monthly, and whatever money she gets as a gift at holidays/birthdays goes into it as well. 

[EFmom]

We have automatic deductions into our state's 529 for the kids.  We live in a high income tax state, and this helps with the state taxes as well as the saving for college.

[hopefulfaith]

Automatic deductions for a 529 for each kid.  It's only a token amount, on principle, so it won't even pay for their first semesters at the rate we're saving.  ;)  However, it is a nice place to put Christmas money from the ILs.