How much do you have for kids college? How much is needed?

[WealthyDoc]

There are limited guidelines out there for how much money is needed for college.  WCI has posted about this.  He tends to be on the lower end (at least for now).  He also has an option of a great in-state college though.  I have two kids.  I'm not sure how much education they will be getting.  I hate to see the financial situations of the residents rotating with me.  They are so strapped with debt that they begin with a huge monkey on their backs.  I want my kids to be practical and frugal, obtain scholarships, and to work.  I don't want to pay every cent of their costs for many reasons.  On the other hand I don't want them burdened with huge debt.  529 accounts are great but putting too much in isn't the best either.  I have about 100k in each of the kids college funds.  Many of my colleagues have similar amounts.  We are pretty sure we are in good condition for now... but wonder... should we add more?  Is that too much already?  Thoughts?

[TheGipper]

How old are your kids? Are you saving in parallel in taxable account earmarked for college?

[conniebird]

I was thinking of saving the amount for tuition + expenses for the state school. I think 150K is safer, I know many saving closer to 200K.

A taxable account also sounds reasonable - so that the money isn't tied up just for school expenses in case their plans change.

[AlexxT]

WealthyDoc wrote:

529 accounts are great but putting too much in isn’t the best either.

Click to expand...

Why not?  529 accounts grow just like Roths, with the advantage that they are outside of your estate so not subject to estate taxes.  They can be reassigned to grandchildren if the funds aren't used for the children.

[conniebird]

Might want to use The funds for something else and you can't without paying a penalty

[VagabondMD]

Each of my teens has two accounts, a 529 and a UTMA account.

Each 529 has about $160k and is currently heavily-weighted in FI. Each UTMA account has about $100k and is heavily weighted in equities.

Ideally, I cover college with the 529 and add some cash from income, if necessary. The UTMA gets set aside for future needs--grad school, relocation for first job, downpayment for first home, etc.

Plan B is to use the 529 and then tap the UTMA, if my income cannot make up the difference. With the cost of private college now exceeding $60k, it is not inconceivable that all of the money gets used up.

[PhysicianOnFIRE]

I plan on having at least $100k in each 529 for two boys before I retire, and may continue to contribute afterwards. The accounts should have about 7 to 10 years to grow before they would be accessed.

I also want them to obtain scholarships, preferably choose an in-state public university, and not blow through them. Having a finite amount might encourage them to be mindful of the cost of education. I will also hammer home the point that anything left over could be allowed to compound for many years and be used to fund their own kids' education someday.

Best,

-PoF

[TheGipper]

A while back, I read a great piece that argued strongly that forgoing the flexibility of a taxable account for a 529 is only worth it if you:

1) Are in a high tax bracket AND

2) Willing to keep a high equity exposure AND

3) Frontload

Otherwise you may only a save a few thousand at best in tax-free growth which for most isn't enough of a premium to give up the flexibility of a taxable account.

I have taken this to heart and frontloaded my 4 kids (ages 9,6,4,1) 529s heavily, where they now stand at a total of $380k.  Sometime very soon I will cease contributions and reassess in 5 years.  My goal was to fund up to 3/4 of private school cost, figuring a good bet one or two would go to grad school.  Worst case I'd use them someday for grandkids.

The beauty of only funding to 50% or less in the 529s is you can maintain a closer to 100% equity position in them and capture more tax free growth and use fixed income outside the 529 to fund during any down years.

I've been tempted to supplement with the UTMA route, by I have nightmares about my kid buying a marijuana farm or something on their 18th birthday

 

[The White Coat Investor]

Why all this fear about overfunding the 529s? Are you guys not planning on helping grandkids with college at all? Just change the beneficiary. I mean, unless you're robbing from your retirement or something you want to buy now, I don't see what the big deal is.

[Sneezy]

Just finished paying nearly full-price (~60K) for one kid's freshmen year at a top private college.

Have almost enough saved for the next 3 years and 4 years for my second who should start right when the first finishes

Used 529's mostly and they worked fine for me.  Like WCI said, I always figured I could transfer them to another beneficiary.  I also like having a distinct account that I see as separate from my other investments and was clearly marked for college expenses (I know, money is fungible and this isn't completely logical)

Not saving specifically for grad school as neither kid has a clear plan they wouldn't get funding for, but if they decide to go into medicine/law or equivalent would help out as best able.

I come from a family which places a high value on education, my parents funded my expensive undergrad, and this is one thing I am happy to spend on (YMMV).

 

[MichaelB]

I have one in college and two in high school. I think $100k is the absolute bare minimum to fund even a state school for 4 years. Younger kids will need significantly more, and if you want to fund grad school, obviously you need a lot more.

We have offered to give our kids some of the money left over that they don't use - this gives them some skin in the game when evaluating where they want to go to school and gives them incentives to get scholarships as well.

.

[trackjunke]

I have one 4-year old and currently have about 35k set aside for college.  My plan is to max out the 529 up to state tax deduction (8k/year) and save the rest in a taxable account (6k/year).  This seemed like a good compromise to me.  I did not like the idea of being completely locked into a 529 with the restrictions associated but still wanted to benefit from the tax advantage.  Hopefully it will be enough when she is ready for college but I plan to pay the rest out of cash flow if needed by that point.

[TheGipper]

To WCIs point, I'm not "worried" about overfunding to the point where I would have to pay the penalty to extract, but I could certainly put any excess money to better use for $ to pay for large sequence of Roth Conversions and to live off in early retirement.

[WealthyDoc]

I asked this question of a FP colleague.  I thought her response would be useful to share:

"I did use a 529 for my girls

I began funding it as soon as they were born at a rate that would pay for their tuition.

I figured I would pay for room and board It was very hard to guess 18 years later but it worked out pretty well I did about 400 per month each, so 4800 per year and 86,400 total with some growth it was closer to 100,000 It obviously would not have paid private

I will say when I saved for my younger daughter to go to medical school I saved for about 6 years and really upped the anty as I knew I had to reach about $200,000

Good luck; it is more overwhelming than retirement as I figure I can keep working!"

[WealthyDoc]

Thanks for all the thoughtful postings and comments everybody.  I think I will beef up the 529s after getting all this input.  Maybe up to 150k each at least.  I do value education and having "extra" probably isn't so bad a risk to take.  With accelerating costs that may not happen and even if it did I could chose: pay a penalty to withdrawal, pay for a relative's education (e.g. nephew or grandchild), or use it myself - who knows I still love to learn!