OT- College Financing (kind of long)

[3'sDad]

When the DD was born, we scrimpted to start an investment account for her as at the time 529 Plans were just beginning and NJ did not have a plan of it's own. Once NJ established a plan, we funded the account annually, with varying amounts of forced savings.

Even with the recent market flucuations, the 529 account's value is more than the accounts investment basis. Our family will manage to save enough for the DD to attend public in-state college with little debt . Private college is a very different matter as the tuition is much higher.

The best advice is to start early and make regular deposits into a 529 account for your softball players. Over 18 years $100/month invested will be $21,600 before any return is factored in. That $21,600 should be worth $40,000 when needed as in a 529 Plan the money invested grows tax deferred.

 

[obbay]

The best advice is to start early and make regular deposits into a 529 account for your softball players. Over 18 years $100/month invested will be $21,600 before any return is factored in.

Is the 529 account typically in the student's name? If so the financial award will be reduced by that amount. The financial advisor i met with discouraged the use of 529's (unless you already had one started) in favor of other vehicles for savings that he felt proved more effective.

there's more than one way to skin a cat, just make sure you do your homework.

On a lighter note, DD has been cleared to play sports again (after concussion #2) and was hitting the ball in practice like there's no tomorrow!

 

[MsDinosaur]

What I have found is that if you had been saving for your kids to go to college since the day they were born, you'd be in for a rude awakening. It is no longer possible to save for a college education. I had invested a little over $15,000 in a long term, stock related savings plan for my kids back in 1999. today it's value is about $8,000. in my neck of the woods, the 529 plans are run by the same people who finance college loans. A 529 is guaranteed to get 100% sucked into school and work against you when calculating your need for financial aid. so you will wind up needing a loan. so the 529 people get your money while you are "saving" and again when you need a loan.

Another benefit to private schools is they have larger endowments and it is sometimes cheaper to go to an Ivy league school than a state school. For the about the next 4 years, all students who qualify for Financial aid at (I think it's these 4) Harvard, Princeton, Yale and Penn will have their needs met with "free money" - no loans, all grants. graduating with zero debt. (this is due to them not allocating enough of their endowments to maintain their non-profit status so they are doing this to compensate).

I've been saving (though not nearly enough!) for DD by putting money into a Roth IRA every month. I had heard somewhere that "retirement" accounts weren't looked at for financial aid. I figured we'd get more aid with the money tucked away into retirement funds and with the Roth, I can withdraw every dime that went in, spend it on her and keep anything it has earned for my retirement.

Yale gives "free money?" Hmm, even though she's never been near the east coast, DD keeps saying she wants to go to Yale. Perhaps I should be more supportive of that!

 

[SoCalSoftballdad]

When the DD was born, we scrimpted to start an investment account for her as at the time 529 Plans were just beginning and NJ did not have a plan of it's own. Once NJ established a plan, we funded the account annually, with varying amounts of forced savings.

Even with the recent market flucuations, the 529 account's value is more than the accounts investment basis. Our family will manage to save enough for the DD to attend public in-state college with little debt . Private college is a very different matter as the tuition is much higher.

The best advice is to start early and make regular deposits into a 529 account for your softball players. Over 18 years $100/month invested will be $21,600 before any return is factored in. That $21,600 should be worth $40,000 when needed as in a 529 Plan the money invested grows tax deferred.

100% agree with you. When my kids were born, we immediately set-up 529 plans. The money grows tax-free and withdrawals for college expenses are also tax-free. Some State's plans even allow you to deduct some of the contributions you make each year for State tax purposes. The fund's management fees are very low and any money not used by one student can be used to pay for the college expenses for a younger sibling.

Hurley has a good website about 529 plans if anyone is interested:The Internet Guide to Funding College and Section 529 College Savings Plans. Savingforcollege.com

 

[obbay]

I went to another financial aid seminar last night, this one by a college administrator. I found out that in my previous seminar, they hadn't discerened between what conditions apply to FAFSA and what applies to CSS. As previously mentioned, Home equity on the primary residence is not considered in FAFSA but is considered with the CSS. Half to 3/4's of the schools we're looking at require the CSS.

also, the loans are a lot higher than when I went to school. When I went to school, student loans were at the same rate or a little less than a savings account. now they are at 5% and higher (which is not only more than the interest on a savings account but also higher than mortgage rates right now).

As I understand it, 401K's and Roth IRAs are both not considered when creating your financial aid profile-but I thought you needed to be 59.1/2 to withdraw from either without being penalized?

 

[MsDinosaur]

As I understand it, 401K's and Roth IRAs are both not considered when creating your financial aid profile-but I thought you needed to be 59.1/2 to withdraw from either without being penalized?

You have to be 59 1/2 or meet one of the exempting conditions (paying for a child's education is NOT included) to withdraw the EARNINGS from a Roth IRA without being penalized. However, you can withdraw any or all of the contributions you put in at any time--no penalty, no tax. So if you put $1000 into a Roth IRA versus instead of into your savings account, the FAFSA wouldn't consider it and would probably give you more aid, but you could still pull that original $1000 out and use it for college expenses. If the Roth had grown to $1200 (earned $200), you'd have to leave that extra $200 there until you were 59 1/2.

Fortunately (haha), I'm an older parent. If I had to, I'd be old enough to start withdrawing my earnings without penalty by my DD's senior year in college. I'm hoping that she'll get enough assistance to let us preserve some of the Roth for our retirement years instead.

From what I could tell, the CSS looks at your home equity AND all your retirement savings. It doesn't seem like there's a good way to shelter funds from it, but I see a places saying that you first do a CSS, then follow up later with FAFSA and adjustments could be made. I'd bet it would be difficult trying to get a school to increase the financial aid they've based on the CSS, even if the FAFSA came in showing you needed much more due to the shielding of the house and retirement plans....

Hmm, we've been working hard to get the house paid off before one of us gets laid off again or she heads off to school. But if we need to do the CSS, I'm thinking we'll want to take out a home equity loan beforehand and pay off our credit card debt. If they're going to look at your home equity and retirement to determine your ability to pay, it's only fair IMO to look at your debt picture too.

 

[SoftSocDad]

Beware the Roth trap. I had a Roth, then had a better year than expected with my business and the IRS penalty for that ended up being more than the IRA had earned in interest that year.

 

[livingontheroad]

The cheapest loan is a home equity, because its secured basically.

Or could borrow against 401k, and pay yourself back with interest, instead of paying someone else. My 401K limits this to $50,000 though.

According to a FAFSA calculator, I am responible for the first $50,000 of my kids college, PER YEAR. That sucks, but its what I anticipated.

Fortunately, Ive been paying $15,000 per year for private school and softball, (which will end, YAY!) and have enough saved that I can easily pay the rest for any school she wanted to go to. However, I am not willing to do that.

Ive told her its either 1) in state school (which will be no net increase in expenses to me basically, actually it could be cheaper since she expects to qualify for free tuition based on grades) or 2) go wherever you want, as long as you have a scholarship that pays some significant portion, like 1/2. But out-of-state is also possible with reciprocation agreements for certain programs too, and one she is considering is available in a neighboring state. Also some schools charge athletes in-state tuition.

One buddy of mine will manage to pay for his daughters college with his Roth, if she doesnt get a tennis scholarship, which she likely will. He spends $12,000 per year on tennis, makes softball look cheap really.

 

[Sweet Lou]

Beware the Roth trap. I had a Roth, then had a better year than expected with my business and the IRS penalty for that ended up being more than the IRA had earned in interest that year.

You are allowed to convert it to a traditional IRA (may not be deductible). Shouldn't be a penalty though unless you didn't get the fix done timely. And now there are ways around the ROTH contribution problem if you are over the income limits if you don't have any non-ROTH IRAs.

As for IRAs and ROTH-IRAs they probably aren't the best funding vehicle for school but as a last resort not a terrible option. Same with hardships from your 401(k) presonally wouldn't recommend doing that but it is an option for some.

401(k) loan are OK, but beware if you leave your job with an outstanding balance on the loan, you may find yourself with a large tax bill for the deemed income when your plan defaults the loan and issues a 1099-R for the income (an penalties if you aren'r 59 1/2). An $50,000 is an IRS limit it is the max that applies to all 401(k) plans not just yours livingontheroad.

Home equity is fine but you actually have to have equity to get one of these. With the real estate market what it is these days many people who have bought in the last 5 years are underwater and can't get a home equity line. And while if you can get it, it could be nice reasonably low interest rate that may even be tax deductible, you are putting your house up as collateral so if foreclosure is remotely possible, again maybe not the best option. Though my brother went home equity line on both his DDs education - neither were sports scholarship candidates but both had partial academic scholarships. He now owes more on the house than when he originally purchased it, 25 years ago.

 

[jinjet95]

Most financial advisors will tell you not to use your retirement savings for your child's college education (unless you have enough saved for both). You or your child can borrow money to attend college, but you typically cannot borrow for your retirement.