Anyone have kids in college?

[AlDente67 563]

I know, what a more relevant forum for such a question, but certainly some here have experienced the college tuition situation.

 

My kid is planning to apply to Rutgers for next year (after HS graduation).

 

A wealthy  family friend has committed to funding the tuition (long story, but lucky us).  He suggested I set up a 529b plan to house the funds.  After looking at the details, this sort of plan appears to be like a 401k (or IRA) for kids, whereby the funds grow tax-free and can be applied to the tuition when the time comes.

It might make sense for a younger child, but seems to me not to have any benefit for a soon-to-be 17 year old.

 

Any thoughts based on your experience?  Seems to me to be a market risk, much like any 401k invested in Mutual Funds.  Great if the market skyrockets, and terrible if it tanks.  I'm thinking this far in, just pay the tuition bills as they come in.

 

Your thoughts?

[iCARRY 0]

I would say you are right. A little late for a 529b. I would consider putting the money into a money market account to get a little interest.

[mikeyjones 88]

You could also have the money in the same 529b account just sitting in cash.  You don't need to be invested in anything while the funds are in the account.

[Howard 538]

You don't have to invest 529 funds in stocks, you can put it into bonds or CD's or other less volatile instruments.  While you need some of the money next year, the rest you don't need for four years.  It makes more sense for the accumulated returns to be non-taxable than taxable as you are suggesting.

[areacode201 4]

It's probably for tax reasons on his end.  Wealthy people are very very good at knowing all the ins and outs of the tax code (or at least they have the funds to hire people who do).

[bennj 215]

From my limited experience, it is a little late for a 529, but the tax benefits might be worth it. I went with Utah's 529 because it gave the best returns, and NJ's sucked. You can also select different levels of risk, the money can be used for educational needs other than tuition, i.e. laptop, books, etc.,  and can be passed on to another if the child doesn't attend college. You might want to talk to a financial adviser (Maksim?) also, it's worth the investment. Good luck with Rutgers.

[Blake 50]

My gf's dad payed for both of his daughter's tuition thru 529's that he set up when they were young.  No idea whether there is a benefit now that your child is grown.  My parents probably could have saved alot of money by doing something like this, both my sister and I were extremely fortunate that our parents paid cash for all of our tuition bills.  

 

I honestly have no idea how an average household can support paying 50k/yr tuition bills for one or more children.  It scares me to think if I have a child by the time they go to college it will probably cost 500k for 4 yrs of schooling at a good school.  

[Parker 213]

I opened 529's for my kids back in the 90's. With two now finished with college, and the last who just started this August, we are winnowing away the remaining amounts. What I didn't use for the first two I can use for the last. I don't know if now is an optimal time to start them.

 

PS - It's a sin what college costs today. I can only imagine what it will cost twenty years from now.

[Michael2013 56]

My two sons graduated from Rutgers.  Wasn't easy, especially one year when the older was senior and the younger freshman.  I wish I had a chance to save in 529b.  We used some loan, subsidized only.  Don't ever take non-subsidized!

[Vini 0]

This could be the reason why your wealthy family friend suggested I set up a 529b plan, just do as he said, IMO. 

 

 

 

An annual contribution of up to $70,000 (or $140,000 if from a married couple) can be contributed to one or more accounts in a single year without owing federal gift tax, so long as no additional gifts to that beneficiary are made for 5 years--that's 5 times the annual exclusion from taxable gifts!

 

https://www.njbest.com/about-njbest/gift-and-estate-options.html

[jgofnj 5]

My two sons graduated from Rutgers.  Wasn't easy, especially one year when the older was senior and the younger freshman.  I wish I had a chance to save in 529b.  We used some loan, subsidized only.  Don't ever take non-subsidized!

Your lucky you got a subsidized loan

[AlDente67 563]

Thanks guys, good stuff.  The little bit of data I found on the NJ plan didn't even mention alternate investments other than Funds A, B, and C.  I have serious doubts about the market these days...nothing but a legal Ponzi scheme.  Too bad CDs and MM funds pay out next to nothing.

[iCARRY 0]

Union county savings bank has a "deal" today only. 1% for 1 year, 1.2% for a 2 year CD. $2500 minimum. Not great but better than anything else out there.

[TheLugNutZ 21]

^ those are really good rates.

 

Like others have said... the 529 is more like the shell, within that shell you can have different investments.  You dont have to invest in risky things, you can put it in cash...

[peter679 0]

My oldest lives in California with my Ex and she's in her 2nd year doing the CC thing, she'll benefit because the Cali college plan is amazing.

 

My step-daughter jus started at Rutgers, and well it's going to cost at this current rate approx $120k minimum.  Sadly her father's a F*Knut and is barely contributing and won't send her money to help her out month to month. Burden on my wife and I.. (I will tap this mf'er out next time I see him, bs'er .. long story).

 

My son's a senior here @Cherokee in Marlton, and we're hoping he can get some assistance from his cross country and track stuff (praying to say the least) and if not well he'll goto BCC. 

 

My son Jack (7), we're going to start th 529 sooner than later...

 

The worst part is IT DOESN'T MATTER!  55% of the jobs in this country are less than 36k a year, and kids coming out of college will be working at the mall cause the job market is so bad!  My oldest is going for Film Study ..yikes I know!!!!!.. my daughter at Rutgers is going for Dietetics (I suggested premed, but you know 18 year olds they know everything about everything).. my son Carlo (17) seems to get it!  He's already coding and hoping to goto school for Computer Science or go my route and do the military. 

 

It's a scary scary world out there right now, VERY scary!

 

 

My

[mikeyjones 88]

Union county savings bank has a "deal" today only. 1% for 1 year, 1.2% for a 2 year CD. $2500 minimum. Not great but better than anything else out there.

There's better deals out there for interest bearing checking accounts. Look up kasasa accounts. You can get up to 3% on up to 10k.

[Howard 538]

"Investing" if you can call it that, in CD's is a fools game.  If you are lucky you might barely keep up with inflation, but even that is unlikely.  The only way to grow principal is to invest in equities.  That means some risk, but with a well balanced portfolio of quality companies there is not that much risk.  On Jan 2nd the Dow was at about 12,950, right this moment it sits at 15,320, that is an increase of better than 18%.  Sure it could go down, but over time it will go up.  True for someone like the OP, with a one to four year time horizon you can't be all into equities, but even with four years out it would be prudent to put perhaps 20-25% into quality equities, that will probably yield 2.5% in dividends plus a chance for growth.  Further in a 529 account that compounds without a tax bite and even the income is not taxable if used for educational expenses.  If you dig a hole and put it in the backyard you are not much worse off than placing it in a taxable CD at the bank with the rates as low as they are

 

Here is an example, a company like AT&T which currently trades at about $34 has a 5.25% dividend yield.  The high before the crash in 2008 was about $42, the low during the crash was about $22.  Even if you had bought it at the high with the tax free compound growth of the dividends you would be OK today.  You would be even better off if you had continuously reinvested those dividends.  The key is dollar cost averaging.  Had you continued to buy a little each quarter from the high in 2008 through the lows and continued till today you would be a very happy camper.  The same goes for almost any quality company.  Over time this is about the only was to outpace inflation.

[mikeyjones 88]

On Jan 2nd the Dow was at about 12,950, right this moment it sits at 15,320, that is an increase of better than 18%. Sure it could go down, but over time it will go up.

I agree with the general sentiment of your statement but that line is very misleading. I could pick plenty of 9 month periods where the return would be extremely negative.

 

Over almost any 10 year period, the return is positive. But the same doesn't hold true for shorter time frames.

 

The stock market has its place but for short term investment, it is not the correct vehicle (unless you're a professional).

[mikeyjones 88]

The key is dollar cost averaging. Had you continued to buy a little each quarter from the high in 2008 through the lows and continued till today you would be a very happy camper. The same goes for almost any quality company. Over time this is about the only was to outpace inflation.

Worst piece of advice!!! Sending good money after bad money is NEVER a good idea. Even a company like att can go belly up. I would have been fired if I ever did that with company money and I have a fairly long leash with risk tolerance.

[Howard 538]

I agree with the general sentiment of your statement but that line is very misleading. I could pick plenty of 9 month periods where the return would be extremely negative.

 

Over almost any 10 year period, the return is positive. But the same doesn't hold true for shorter time frames.

 

The stock market has its place but for short term investment, it is not the correct vehicle (unless you're a professional).

Yes you could pick periods to show almost any trend, I agree.  But I was just showing how it has done this year as an example not to say that will happen all the time.  The larger point was that with monthly contributions, dollar cost averaging, and reinvestment of dividend in a tax free account that even if the market is down some you will probably still be ahead.  Further while the OP has some need for funds next year, other funds won't be needed for four more years.  Those funds for four years out should be invested where they will hopefully provide more return.  But, everyone has their own risk:reward trade-offs they feel comfortable with.

[Howard 538]

Worst piece of advice!!! Sending good money after bad money is NEVER a good idea. Even a company like att can go belly up. I would have been fired if I ever did that with company money and I have a fairly long leash with risk tolerance.

Actually its a very good piece of advice if you are investing in quality companies for the long-haul as opposed to short-term trading.  If the fundamentals of a company are such that you still want to hold it if it goes down, then there is no reason not to buy more of it at a lower cost if you can.  If the company is crap and you should be selling and taking a loss that is a different story.  But quality companies go on sale (ie their stock price is lower today than yesterday) due to macro economic issues and that is the time to buy.

[raz-0 1,259]

Yes you could pick periods to show almost any trend, I agree.  But I was just showing how it has done this year as an example not to say that will happen all the time.  The larger point was that with monthly contributions, dollar cost averaging, and reinvestment of dividend in a tax free account that even if the market is down some you will probably still be ahead.  Further while the OP has some need for funds next year, other funds won't be needed for four more years.  Those funds for four years out should be invested where they will hopefully provide more return.  But, everyone has their own risk:reward trade-offs they feel comfortable with.

 

Also, remember purpose. This isn't managing retirement funds, this is to house funds given to a kid for tuition that will be shortly withdrawn to pay tuition. 

 

If I had a deal like that, I would treat the funds in an exceptionally risk averse manner. 

[mikeyjones 88]

Actually its a very good piece of advice if you are investing in quality companies for the long-haul as opposed to short-term trading.  If the fundamentals of a company are such that you still want to hold it if it goes down, then there is no reason not to buy more of it at a lower cost if you can.  If the company is crap and you should be selling and taking a loss that is a different story.  But quality companies go on sale (ie their stock price is lower today than yesterday) due to macro economic issues and that is the time to buy.

 

 

There is definitely a school of thought that agrees with DCA. It is in every book and mentioned in plenty of articles.  However, there is a rather large distinction that needs to be addressed.  What you're saying to do is to average down in 1 particular asset while the price is going down. IMO, that is an absolutely TERRIBLE idea.  Every trade you place should be based on some form of a risk/reward or expected value calculation. If they're not, then you're just guessing blindly.  Once you start buying the stock on the way down, you are making that calculation absolutely worthless.  Your risk becomes overextended and your asset allocation is all out of whack because an asset fell and you thought it was "cheap". What happens when it gets "cheaper"? 

 

The only time I will agree with DCA is with total portfolio allocation. ie; buying into asset CLASSES over time.  However, if you have the cash on hand, there is absolutely no reason not to just invest right away into your desired asset classes in one shot. The market swings both ways and while you might lose a little by buying in at once, you might also lose out by not being fully invested.

[Howard 538]

There is definitely a school of thought that agrees with DCA. It is in every book and mentioned in plenty of articles.  However, there is a rather large distinction that needs to be addressed.  What you're saying to do is to average down in 1 particular asset while the price is going down. IMO, that is an absolutely TERRIBLE idea.  Every trade you place should be based on some form of a risk/reward or expected value calculation. If they're not, then you're just guessing blindly.  Once you start buying the stock on the way down, you are making that calculation absolutely worthless.  Your risk becomes overextended and your asset allocation is all out of whack because an asset fell and you thought it was "cheap". What happens when it gets "cheaper"? 

 

The only time I will agree with DCA is with total portfolio allocation. ie; buying into asset CLASSES over time.  However, if you have the cash on hand, there is absolutely no reason not to just invest right away into your desired asset classes in one shot. The market swings both ways and while you might lose a little by buying in at once, you might also lose out by not being fully invested.

Well Mikey you are right and wrong at the same time, it all has to do with what you think the future will bring.  If you go all in at once you will lose more if it goes down than if you bought in a few times as it was going down.  But again, I am not saying to just buy more of something because it went down.  Think of it this way, if you like company "X" and would buy say 1,000 shares of it at $20 now, you might be better off buying 500 shares now and if it drops picking up more to get to your target of 1,000.  We all know the stock market zigs and zags and never move in a straight line over a period of time.  Bottom line, if there was any one method that was the "right" way to do it, well it would be the wrong way as everyone would pick it up and it would not work.  I have done very well over time with dollar cost averaging, while it might not be good for all people or all investments, it works very well for me.  All of that said, going back to the OP, what to do all hinges on his risk:reward tolerance.  I tend to be less risk adverse than many.  When people are afraid and selling is when I do most of my buying.  I was a big buyer during the 2008 crash, and in the 1987 crash as well.  The way I see it is that in the long-run the US economy will do well, if it doesn't,  well not much else matters.  Thus, when quality companies drop due to overall economic activity I step in and buy.

[mikeyjones 88]

Howard, we'll have to agree to disagree. I have done very well with contrarian trades in the past and am not opposed to them. I also tend not to be risk averse and will buy/sell things based on MY valuations even if it's way outside the market. However, that's still not what you're advising. To me, buying something on the way down simply because it's getting cheaper is a lack of discipline. Then again, my teachers and bosses reinforced that principle many times. That's like playing poker with a crappy hand yet doubling the bet just to stay in. At some point, you have to fold them... Either the market or your account has to dictate your exit point.  

 

Another thing to mention quickly, with transaction costs being so low today, you're not missing out on anything by dumping a position and buying back in if the evaluation changes.  ie: Company x @ $20, my target is $40, my exit is $10.  if it goes down to $10, I hit abort. Yes I lost $10, but that was part of my calculation. I felt that the stock would more likely go up than down. Then if something changes, I could always buy back in and recoup my loss and make a profit.