A basketball forum is a strange place to ask this, but I know there are some good financial minds in here, so here goes: I have $15k that I have saved up and I have an automated draft of $50/ week going for my 9 & 6 year old boys college funds. Right now it is just sitting in a standard savings account, drawing next to nothing in interest, and I have looked into both a cd and the 929 funds. The 5 year cd is only paying 1.15% and putting all my money into the market with a 929 scares me. Also you have to split up the money per child if I read into it correctly. I have talked with a couple of financial institutes, but they don't seem to be much help. Any advice will be greatly appreciated!
I don't know much about the financials, but send them to a community college for their generals and you will save thousands per semester for your first couple years.
Or better yet, tell them to bust arse and get a full/part scholarship at a good school. No reason to be already thinking community college. My brother got a full ride to UT. He did well in high school and did great on his SATs.
I assume you mean a 529 college fund as opposed to 929? What do you mean - split up the money per child? Do you mean that you need to open two accounts (one for each of your children)? If that is the case and your worry is that one won't go to school, you can transfer the assets from one of the plans to the other. I assume you just need to be aware that you don't hit the maximum amount. We have these set up for our 3 grand children. If the oldest (currently 17) decides not to go to college or not to go to a college that this can be used for, then we can transfer the funds in her account to the other two. Keep in mind that these finds can only be used for school expenses. For example, if it is necessary for your child to have a car in order to attend college, 529 funds cannot be used for that. EDIT: This is my understanding of the plans we have set up. For something more official, consult a financial specialist.
I'd talk to a broker (ask around and get someone who's suggested to you by someone you respect and trust) and put it in a mixture of stocks and bonds, with both a growth and a conservative bias. You can minimize the downside of a down market, and give yourself some upside if the market goes up, which it has been doing recently. One thing to remember, OK, two things... don't put all your eggs in one basket. Have a lot of baskets. And remember that, historically, the market always comes back. I've lost money in the market a few times over the years, including the recent unpleasantness, and it has always come back, and I've always ended up ahead. Often, the worst thing you can do is get in a panic and bail. Hang in there and the worm will turn. It's great that you are doing this for your kids. College is amazingly expensive now, unlike when I went 40+ years ago. Keep socking it away for them and it will add up, but you need to improve the return you're getting. Stick around and I can trot out a few more clichés! ;-)- It's a pity that they no longer have the Texas Tomorrow Fund. Both my kids had that purchased for them by my late mother the first year it came out, when it was the cheapest. The state figured out that they were losing their shirt on it, and eventually stopped the program, but those still in it are backed by the full faith and credit of the State of Texas. It's helping to pay for my son's college out of state, and if he had gone to a state university in Texas, it pays for all tuition and fees, whether it's Texas or Texas State. A hell of a deal, and a pity they no longer have it. I told my daughter that she either goes to a state school in Texas, or gets a hell of a scholarship. Good luck!
I think you need to set up 2 accounts. It's also like a retirement account. You take risk depending on when you need the money. If you need it soon, be conservative. In your case, with a 8 and 11 years horizon, you can be more aggressive. Investment should also fit your temperament. If you are not a risk taker, put the automated draft in aggressive investment but keep the $15K in a more balanced fund. For sure I would not put it in a CD that pays 1.15%. I myself did not utilize the 929 fund. If I understand it correctly, the more money you/ your children have, the less your children can get thru scholarships, grants, loans. I also want to keep the money myself and I can contribute to my child's need when I want to. Just my 2c.
Full ride to UT? Wow, must be some out of this world stats. (Or that the money is for need based?) My DD is top 1% GPA and SAT and not expecting anything from UT.
Yes I did mean the 529 plan, and my concerns with multiple accounts was more with splitting up the money than if one kid will go to school or not. I will check into this plan again. I do have an accountant friend that I trust, so I will get his advice on a broker also. Great advice guys and rep for trying to help! (except to Deckard and mylilpony to whom I must spread some rep...)
My suggestion is that you use an age based 529. Vanguard has one. As your child gets older and closer to college, the portfolio gets more conservative. Even though the account is setup in your child's (or grandchild's) name, it is your money. 529s do not count as the student's money but the owner's money. Colleges when determining funding assume that all of the student's money will be their's, as well as part of the parent's money. Some people open 529s with no real expectation of ever spending a penny of it for the student's education. It is a straight tax dodge, since all earnings grow tax free.
Except for the fact that if you withdraw the money for non-college related costs, you pay a 10% penalty plus any tax on the income.
You can also look at the Texas tuition promise fund. It's not nearly as good as the one declared got in on but it's something. I'm doing a mix of that and a 529.
I fund my state's 529 plan. Not only are earnings tax-free, but GA lets us deduct up to $2,000 per child on our tax return (6% savings). Both kids are in aggressive managed funds, and I've been very happy with the results.
Basically the same thing my dad told me. College in GA is paid for by the HOPE scholarship (which at the time, only required a 3.0 GPA and paid 100% of your tuition for a public in-state university). They've made a lot of cuts to HOPE in the past few years, but am hoping it is still around by the time my kids go. I'll pay for tuition or room & board. Not both.
Also tax on the cap gains. People open these "ghost" 529s to augment their retirement savings. They are betting that their income tax bracket will be much lower when they retire, to offset the 10% penalty. They would be delusional to think that the long term cap gain tax rate when they retire will be any lower than it is today. Any plan that depends on the tax rates many years out is too risky in my book.
Do you have to open a 529 through your state or can you go anywhere? I've been interested in this but don't know where to start. Don't forget, I'm in Arkansas.
Anywhere, but your state plans often offer additional benefits. Just looked it up, and Arkansas lets you deduct up to $5,000 per taxpayer for contributions to their 529 plan. http://collegesavings.about.com/od/taxbreaksforcollege/a/arkansastax.htm
My suggestion: Get both kids life insurance (1 million each), and when they get to college, pull out of that account to pay for their college. You are allowed to borrow from the life insurance (depending on policy, make sure you get one where you can). Since they are young still it won't cost much, and it will save you the hassle of saving up that much money.
