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ChrisJM981

529 College Savings Plan

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I'm currently comparing 529 plans to start saving for my kids' college expenses. Although I'd rather try to shelter the assets for filling out the FAFSA, I have family members asking about a plan for them to make contributions to. 

My first stop was the NJ Best 529 plan. The consensus seems to be that the plan offers no advantages to NJ residents aside from a $1500 scholarship for attending a NJ school. We can't deduct contributions off our taxes (like almost every other state in the country), the investments are limited to large caps, and the fees are high at around .75 of a point (Utah is .19ish and NY is .15).

Utah has gold(?) rated investments by Vanguard and great CS from what I've read. I have no income from NY, so that benefit is gone, they're funds are silver(?) rated, and I have a general disdain for anything associated with NY. 

I'm curious how the fellow captives of NJ have invested for college. 

Edit: I have a 4yo and 8 month old. 

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Basically, it connects your credit card (and others, if they are OK with it) to the account and each purchase made contributes a percentage to the account.  We paid daycare tuition for years with the credit cards (paying them off each month) along with things like down payments for vehicles, groceries, gas, etc.  Every penny counts.

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1 hour ago, ChrisJM981 said:

I'm curious how the fellow captives of NJ have invested for college. 

I could write a book... I have three that went to college, 5 degrees between the three.. I paid very little towards their college expenses, and the most any of them owed when graduated was like $27K. and they weren't great students, one took 6 years, the other took 5 years.

The key is to change your focus, it's not trying to figure out how to save tons of money to pay for college. The key is to figure out how to get a college education at the lowest, out of pocket cost.

Big difference...

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7 minutes ago, Sniper said:

I could write a book... I have three that went to college, 5 degrees between the three.. I paid very little towards their college expenses, and the most any of them owed when graduated was like $27K. and they weren't great students, one took 6 years, the other took 5 years.

The key is to change your focus, it's not trying to figure out how to save tons of money to pay for college. The key is to figure out how to get a college education at the lowest, out of pocket cost.

Big difference...

Scholarships and costs of a particular school? I'm listening!

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I'm using the Nevada plan through vanguard, I opened them as soon as I got my kids' SSN. It made the most sense when I started several years ago, I haven't re-researched it since then tho

 

I have heard talk about using other retirement accounts to pay for education without penalty (e.g. starting an IRA explicitly for college, with the intention of rolling it over if it's not exhausted) but those tax implications are beyond my pay grade

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7 hours ago, Sniper said:

I could write a book... I have three that went to college, 5 degrees between the three.. I paid very little towards their college expenses, and the most any of them owed when graduated was like $27K. and they weren't great students, one took 6 years, the other took 5 years.

The key is to change your focus, it's not trying to figure out how to save tons of money to pay for college. The key is to figure out how to get a college education at the lowest, out of pocket cost.

Big difference...

Aside from getting good grades and being a good student...Would LOVE  to hear more. Do's and Donts? 

 

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My youngest two (twins) are graduating now. One today from Stevens and the other next week from the Air Force Academy. Their older sister graduated from Dartmouth in 2016. I saved heavily for them since I knew that being a business owner I was screwed because that big asset would weigh heavily when college time came. I think I started with the 529's around 2003 and had a pretty good amount saved but it would not have been enough without my one getting in the Academy. The money you put in is post taxes but any growth it makes while in the 529 is tax exempt as long as the money is used for approved college expenses.

We were in Franklin NJ funds but there were probably other better choices. I went with what my financial service provider offered. If I remember right you can invest in any state's funds and use them towards any college. You can even switch the funds from one child to another (Air Force was free so that money went to Stevens Institute which ironically was more expensive than Dartmouth). Certain states had lower expenses and special deals for in state tuition - Nj was not one of them.

Good luck with the college savings, it will be worth it in the long run.

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Went with the Nevada plan through Vanguard as well, since there is no real advantage to go with the NJ plan.

Have 1 daughter in VT and a second daughter going into Towson.  First I would recommend saving as much as you can in the 529, you can always use one child's account to pay for the other so there should be little chance of over saving.

Use online resources or Naviance to find out where your child is on the acceptance  continuum based on grades and SAT/ACT scores then apply to colleges in tiers, with the tier being schools that your child is well qualified, even over qualified for and acceptance is almost guaranteed, next apply to a few schools that are about right for your child's grades and scores and lastly, if you want apply for a couple of reaches.  You may get more grant $ from schools that you are well qualified for.

Private schools can cost more in general but typically award more grant money, especially if your student is well qualified so apply for both private and state schools.

Encourage your child take both the SAT and ACT, they may do better in one than the other and there are tools to cross reference the scores.

We found many out of state schools that were comparable to in state schools once you figured in the grant $$.

Good luck and feel free to ask questions.

 

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There are things you can control and things you can’t control.  The shielding of assets things you cannot control you have no idea what your fortunes will be a decade from now.  (Rich, poor, divorced, disabled).  There is only one thing you can be certain.  Compound interest and tax free returns.   (Yes I know tax codes can change, just go with the message I’m trying to say here).  People take for granted the power of tax free gains for a decade of contributions to a 529.   Your age matters big time.  If you will be under the age of being able to tap an IRA or 401k when college is due you should be maxizing 529 contributions.  If you will be able to tap a Q plan when your kid in college then don’t max your 529 max your 401k or IRA.

as far as “which state is good”?   It’s not the state it’s the fees.   If you know In your mind what investment vehicl you will pick regardless of the state. (I chose SP500) then I don’t give a crap what state it is the returns are the same.

sounds like you know a ton already just by knowledge of the NY tax break not applicable to NJ peeps.   

If you feel deep down that you would pay for college almost first before thinking about your own retirement (please let’s not judge that) then the 529 max is the way to go primary.   If college help is “hopefully” bit not to the detriment of your own Q plan maximizing then you max your plans first then 529 after.

again, tax free is a godsend.  That is more sire thing then trying to play the financial aid game.  

For those really tax savvy here yes I get the difference a Q plan is PRE tax a 529 is post tax, however the timing of the withdrawal matters.   If you are gonna be 60 when first college check goes out you could tap a Q plan without penalty that leaves you the option of having the cash for yourself if on a fluke the kid gets a scholarship or chooses not to go to college.

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4 hours ago, beachwhistle said:

No matter how much you save for college it won't be enough.

Exactly right, and considering like 45% drop out and don't graduate, it ends up being a whole lot of money spent for zero return. Not every kid is college material and should go. Read that again, 45% fail to get a college degree after 6 years in school.

Here's another statistic, like only 20% of kids graduate after 4 years, so the odds are, your kid will be going for at least 5 years. Make sure to tack on those costs... you aren't going to pay for just 4 years...

That's why it takes a complete shift in thinking, instead of thinking I need to save $100K to pay for junior's college,  the focus needs to be on, how can he get an education at the LEAST cost!!

The focus needs to be on FINDING money: scholarships, grants, tuition reimbursement plans, etc. Plus, a plan needs to be made to keep costs low. Send the kid to community college the first two years. You'll find out quickly if he's college material before blowing $25K minimum a year at a four year school. Kids DO NOT need to live at school, talk about throwing away money. They certainly AREN'T studying all that time.

Let the kid commute to school, stack all his classes up on two or three days, so he can go work part time the other days and make money to pay for it.

Lastly, the NUMBER ONE RULE TO REMEMBER.... College is a business, it's their goal to keep your kid there as long as possible, to keep extracting dollars from you. Always remember, they DON'T have YOUR best interests at heart, they have THEIRS, and taking as much of your money as possible is their plan.

Final note, and this should piss some people off, but here goes. The parents should NOT pay for junior's college tuition. It's not the parent's responsibility, since the college degree only benefits the kid. The parent's responsibility is get the kid graduated from high school. That's it.

Plus, the kid needs major skin in the game, by making the kid pay for his college, puts him on the hook, makes him responsible, and will make him think twice when he's failing a course, knowing HE'S paying for it the second time. It doesn't get any more Socialist than giving a kid a free ride with his college expenses on your dime.

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The kids each have a nice start. The plan is to make them think they're paying for everything and put the money away for a later time. I lived at home until my late 20's and put a good chunk in my 457 account. Grandma needs to start making withdrawals and has nothing to spend it on. She's trying to gift a good chunk to the grandkids. They're going to mostly rely on compound interest so daddy can continue to contribute to retirement accounts in an attempt to retire after they get out of college. 

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3 hours ago, Sniper said:

Exactly right, and considering like 45% drop out and don't graduate, it ends up being a whole lot of money spent for zero return. Not every kid is college material and should go. Read that again, 45% fail to get a college degree after 6 years in school.

Here's another statistic, like only 20% of kids graduate after 4 years, so the odds are, your kid will be going for at least 5 years. Make sure to tack on those costs... you aren't going to pay for just 4 years...

That's why it takes a complete shift in thinking, instead of thinking I need to save $100K to pay for junior's college,  the focus needs to be on, how can he get an education at the LEAST cost!!

The focus needs to be on FINDING money: scholarships, grants, tuition reimbursement plans, etc. Plus, a plan needs to be made to keep costs low. Send the kid to community college the first two years. You'll find out quickly if he's college material before blowing $25K minimum a year at a four year school. Kids DO NOT need to live at school, talk about throwing away money. They certainly AREN'T studying all that time.

Let the kid commute to school, stack all his classes up on two or three days, so he can go work part time the other days and make money to pay for it.

Lastly, the NUMBER ONE RULE TO REMEMBER.... College is a business, it's their goal to keep your kid there as long as possible, to keep extracting dollars from you. Always remember, they DON'T have YOUR best interests at heart, they have THEIRS, and taking as much of your money as possible is their plan.

Final note, and this should piss some people off, but here goes. The parents should NOT pay for junior's college tuition. It's not the parent's responsibility, since the college degree only benefits the kid. The parent's responsibility is get the kid graduated from high school. That's it.

Plus, the kid needs major skin in the game, by making the kid pay for his college, puts him on the hook, makes him responsible, and will make him think twice when he's failing a course, knowing HE'S paying for it the second time. It doesn't get any more Socialist than giving a kid a free ride with his college expenses on your dime.

This was the best post I’ve read in a while.

hits the nail right on the head.  Having been in staffing for the past 20+ years I know for a fact...it’s where you finish your degree,  not where you start it.

2yrs at at a community school + 2 years are X big name school...degree says bachelors in Y from X big name school.

 

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20 hours ago, NJSigfan said:

This was the best post I’ve read in a while.

hits the nail right on the head.  Having been in staffing for the past 20+ years I know for a fact...it’s where you finish your degree,  not where you start it.

2yrs at at a community school + 2 years are X big name school...degree says bachelors in Y from X big name school.

 

I know a lot of people who went this route and it worked out well for them. Most for just one year as even that makes a big difference at the schools in the northeast. There are some downsides though. I know one that was often complained about is that transfers get later class sign up times than others in their graduate year so they didn't get to take a lot of classes that they wanted and some missed out on minors they only needed a few more classes for (students with the listed major also get preference so it's a double blow for transfers).

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8 hours ago, Sevenshot said:

Most for just one year as even that makes a big difference at the schools in the northeast. There are some downsides though. I know one that was often complained about is that transfers get later class sign up times than others in their graduate year so they didn't get to take a lot of classes that they wanted and some missed out on minors they only needed a few more classes for (students with the listed major also get preference so it's a double blow for transfers).

I've never heard that about transfers, it must have been a special case or not normal situation.

One big point about sending the kid to community college for the first two years (which definitely should be done), the kid needs to actually graduate with a AA from the community college. The reason getting the degree is important versus just taking classes is, in NJ if the kid has a AA degree, EVERY credit transfers to the four year school, no matter what. The classes don't even need to match up, there was a law signed in NJ years ago that said four year schools MUST accept ALL credits if the kid received a degree.

Knowing this will save you dudes or the kids thousands of dollars, and save the kid from paying for and re-taking classes he already took in community college.

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2 hours ago, Sniper said:

I've never heard that about transfers, it must have been a special case or not normal situation.

One big point about sending the kid to community college for the first two years (which definitely should be done), the kid needs to actually graduate with a AA from the community college. The reason getting the degree is important versus just taking classes is, in NJ if the kid has a AA degree, EVERY credit transfers to the four year school, no matter what. The classes don't even need to match up, there was a law signed in NJ years ago that said four year schools MUST accept ALL credits if the kid received a degree.

Knowing this will save you dudes or the kids thousands of dollars, and save the kid from paying for and re-taking classes he already took in community college.

It's not a special case. I'm not talking about 1-2 cases. I know dozens of people who have done this. 

Another thing to consider is that it is often harder to get into a top school as a transfer than in regular admissions. The advice on getting a 2 year degree is actually very important as colleges look more favorably on those students as well.

While you don't know how or how quickly your kid will mature, you know what your kid is now. Definitely base your decision on what your kid is and not what you hope will happen. I know guys who joined the army and then used the GI bill for school. They were glad they went this route because looking back they lacked the maturity to take advantage of school for what it is.. an investment. Make sure they make a good investment otherwise they'll end up voting on candidates solely for loan forgiveness.

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I don't know anything about this topic as we have no one to send to college. But I'm curious.

Let's say you save $50,000 for college starting from birth and when your child graduates high school he/she decides to do a trade instead. (Welder, electrical, etc.)

What can you do (or not do) with that money?

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22 minutes ago, 45Doll said:

I don't know anything about this topic as we have no one to send to college. But I'm curious.

Let's say you save $50,000 for college starting from birth and when your child graduates high school he/she decides to do a trade instead. (Welder, electrical, etc.)

What can you do (or not do) with that money?

My parents had set me up with a UTMA at birth that did well. Since I was lucky enough to be in state at UNC-Chapel Hill and had free room, board, and food on top of the cheap tuition, the UTMA wasn't really needed. However, it was still important to transfer it to me while in college and not making much money so the capital gains wouldn't be taxed. Hopefully, you are on good enough terms with the kid that they will transfer the money back over a few years. As soon as the kid makes money, the capital gains are taxed at his/her regular rate.

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30 minutes ago, 45Doll said:

Let's say you save $50,000 for college starting from birth and when your child graduates high school he/she decides to do a trade instead. (Welder, electrical, etc.)

If you're referring to the 529, yes, it can be used for trade and voc school tuition, not just standard college.

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41 minutes ago, Sevenshot said:

While you don't know how or how quickly your kid will mature, you know what your kid is now. Definitely base your decision on what your kid is and not what you hope will happen. I know guys who joined the army and then used the GI bill for school. They were glad they went this route because looking back they lacked the maturity to take advantage of school for what it is.. an investment.

This is a great point.

Many kids have no idea what they want to to study or do for a career after high school. Hell, I know a bunch of adults still trying to figure that out. Instead of automatically sending the kid to college, a few years in the military can help "mature" them, give them some training in a skill, and then they can get out and hopefully have a better idea what they want to do.

Remember my comment above, over 40% of kids drop out of college and never graduate. I would guess many are in this group who aren't mature or focused enough. Why blow tens of thousands a year and get zero return, and a BIG bill to pay back?

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1 hour ago, 45Doll said:

I don't know anything about this topic as we have no one to send to college. But I'm curious.

Let's say you save $50,000 for college starting from birth and when your child graduates high school he/she decides to do a trade instead. (Welder, electrical, etc.)

What can you do (or not do) with that money?

If it’s a 529 plan since the money grows tax free if kid doesn’t need it you pay 10% penalty + income tax rate on any GAINS from the money.

if it’s a UTMA account (mentioned above) that’s not actually an “education” plan.  That’s just money gifted to the kid, it’s his free and clear and he can blow it all on coke and whores if he wants to (this is not a dig on the parents who set up UTMAs I’m just saying legally it’s the kids money, not the parents money.  It was an irrvevicable gift).

529s are the holy grail if paying for college is your goal in life.  If it’s a “maybe” goal then just keep the money in your own separate account that is earmarked for college (you gotta have will power to keep it separate thiugh)

if you dont have the will power to segregate funds then do the UTMA you are gifting your kid the money irrevocable and he can spend it on college or start his own company with it.   

We advise people that if you are 10000% sure you want to pay for college then 529 to the max.  If you are a “my wish is pay for college but I gotta take care of myself” then maybe do a 50/50 of 529 and separate account earmarked for college.  That way if you need the money it’s still yours.

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13 minutes ago, Barms said:

If you are a “my wish is pay for college but I gotta take care of myself” then maybe do a 50/50 of 529 and separate account earmarked for college.  That way if you need the money it’s still yours.

I'm glad you mentioned that...

I know people who tapped their retirement accounts (or home equity) to pay for the kid's college. Now, they have hardly anything put away so they can retire, and will probably only have Social Security, and will be living in a refrigerator box.

DON'T EVER DO THAT!!  NEVER!!!

That's YOUR money to use for YOUR retirement, that you busted your ass to earn and save. With almost 50/50 odds your kid won't graduate college, NEVER spend YOUR retirement funds on his college. You need to take care and plan for yourself FIRST!

While we're talking about money, also NEVER co-sign a Parents Plus loan with your kid. If they default and don't pay (which is where about 40% of college loans are now), YOU will be on the hook for repayment, and YOUR credit score takes a hit. Plus, a Parents Plus loan NEVER goes away and can be really hard to discharge in bankruptcy, so it will haunt you until it's paid off...

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529 is a beautiful thing but should only be utilized if you have maximized your own 401k or IRA.   Which most people don’t.  Honestly the 529 is the nirvana for anybody else who wants to help fund college that is NOT the parents.  Parents should focus on retirement savings first.   If grandparents or aunt uncle god parents want to “give some money to the kid help out the college fund”.  Then tell them to set up a 529 for the kid, or give it to the parents and the parents put it in the 529.  

If parents aren’t maximizing their own tax efficient funds they should not be contributing to 529.   (If it’s someone else’s  money then 529 all the way).

if the aunt uncle grandparent godparent wants to give a check but they don’t want to be aggravated setting up the 529 it’s perfecrly legal for them to gift the money to parents then parents put in 529.

if you are feeling really frothy   As of 2018 529 money can now be tapped for private K-12 too.   So if Don Bosco was your goal you can tap the 529 for private HS too.

 

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Thanks for those several informative posts.

Here's one more thing to think about for those with potential college graduates. As previously mentioned, take care of yourselves and your retirement first.

Why? Because even if they graduate there's no guarantee they'll get a job that will pay their way in the world, and you may have to help out (if you care to). 

That is our scenario now, and fortunately we can do it and our child is well worth it.

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Saw this article pop up today, since we were talking about how to pay for college. Seems like more an more kids (and adults) are fleeing the country because of their HUGE ($20K) school loan debt that they can't pay.

One note to you future parents of college kids, if you co-sign their school loans, and they flee the country (like in this article) YOU'LL be on the hook to pay it all back.... Just something to think about before putting your name on that loan too...

Debt-Laden Americans Flee Country To Escape Crushing Student Loans

...."Chad Haag considered living in a cave to escape his student debt. He had a friend doing it. But after some plotting, he settled on what he considered a less risky plan. This year, he relocated to a jungle in India. “I’ve put America behind me,” Haag, 29, said.

Today he lives in a concrete house in the village of Uchakkada for $50 a month. His backyard is filled with coconut trees and chickens. “I saw four elephants just yesterday,” he said, adding that he hopes never to set foot in a Walmart again.

105449669-Unknown-2.png?v=1536864260&w=1

https://www.cnbc.com/2019/05/25/they-fled-the-country-to-escape-their-student-debt.html

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I wonder what job you would expect to fill as a communications and history major? (From that article.)

My degree was in Philosophy, and I had no expectation whatsoever of using it in the job market. I got out of college and my first job was as a news reporter. (Holy crap... a conservative news reporter! I have stories about that.)

Unexpectedly, with the rise of two-state Boolean algebra machines (otherwise known as computers) I was perfectly positioned to do very well with them. I was frequently the only person within office distance who could think in a straight line.

Aristotelian logic ended up doing very well for me. Many benefits in my personal life too.

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16 minutes ago, 45Doll said:

I wonder what job you would expect to fill as a communications and history major? (From that article.)

There is a market for communications majors, though I don't know how it compares to the number of students majoring in communications.   Any company of any size will have a corporate communications department (could be one person, could be a few dozen), and media companies tend to hire a lot of them.  The history degree would only be viewed as a plus for some small fraction of those jobs, but a second major, like a minor, wouldn't be viewed as a negative.

Continuing the Chad Haag quote that Sniper began, I was bothered by:

"More than 9,000 miles away from Colorado, Haag said, his student loans don’t feel real anymore. “It’s kind of like, if a tree falls in the woods and no one hears it, does it really exist?” he said."

The CNBC article seems to paint Haag as some kind of clever folk hero, but to be clear:   Haag is an irresponsible deadbeat.

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6 hours ago, 10X said:

The CNBC article seems to paint Haag as some kind of clever folk hero, but to be clear:   Haag is an irresponsible deadbeat.

Thank you! That should be obvious... but not to a CNBC reporter (obviously). This whole trend of people blatantly trying to shirk paying their college debt ticks me off.  What irresponsible schmucks are we raising these days? If you don't want a bunch of debt... the formula is simple:

  • think long and hard about whether college is even the best choice for you (as others have mentioned, there are other tracks), but if you DO choose college: 
  • give due weight to affordability (state schools, commutable locations, 2 years at community college, etc.) 
  • give Dept of Labor and demographic projections ample consideration while selecting your major, so that you're moving with trends and not against them
  • avail yourself of college experiences that give you a leg-up on other candidates upon graduation (e.g., summer internships, co-ops, etc.).

And, if you do the opposite of all that... don't expect Mr./Ms. Taxpayer to pick up the tab for your silly-ass, poor choices.  

 

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