<p>If you are lower income, would you still invest in these 529 plans, or is this vehicle more for the higher income ? I have 5 kids, one will start college in about 3 years. I heard their are many fees involved with these plans, plus they are not guarenteed, plus every state has different plans. I am in PA and not sure what to do, where to start, about saving for my kids College, or better to just stick with putting our money into our retirement (as sacrificing our Retirement is not something I want to do), as we are lower income according to statistics anyway and all this could hurt our finanical aid options. What to do, where to start, any books recommeneded for the lower income -Middle income options for saving for College and retirement, how to balance it all. Thank you.</p>
<p>You are very smart for beginning to think about this 3 years before your first child goes off to college.</p>
<p>I highly recommend you read the book Paying for College Without Going Broke by Chany and Martz. My library had a copy I checked out but it's available here: <a href="http://www.amazon.com/gp/product/0375765026/sr=8-1/qid=1149176549/ref=pd_bbs_1/102-7133390-6649706?%5Fencoding=UTF8%5B/url%5D">http://www.amazon.com/gp/product/0375765026/sr=8-1/qid=1149176549/ref=pd_bbs_1/102-7133390-6649706?%5Fencoding=UTF8</a></p>
<p>It partially depends upon whether you think your children will be able to be accepted to schools that offer good need-based financial aid. There are many good schools that meet 100% of need based aid as calculated by Estimated Financial Contribution calculators such as the one here:</p>
<p>Plug in your numbers and see what you get. If you are a low-income family, it's likely your EFC is very low.</p>
<p>Generally, the advice for low- and moderate-income families is:</p>
<p>Fund your retirement before setting aside money for college, especially in the years before your child's senior year and before you've ever filled out a FAFSA.</p>
<p>Do not skimp on paying for activities for your children in order to save for college. For example, those music lessons, that summer abroad trip to solidify foreign language skills, the sports team fees, the science camp, and other extracurriculars may be the ticket to be accepted to a good school that meets 100% of financial need. A $100/month investment in some of these activities may yield a very good return in terms of financial aid versus putting that money in a savings account.</p>
<p>The fact that different states have different plans should not affect you if you do the 529 savings plan rather than the prepaid tuition plan.</p>
<p>Whether your children get accepted to a public school that doesn't offer very good financial aid, or a private school that does, there will generally still be an expected parental contribution, and if you can afford it, it doesn't hurt to have some money set aside for that purpose. If you do have some money to set aside, you may want to just put it in a separate savings account rather than a 529 account. You will get dinged ever so slightly in taxes by having the money in your name and not in a sheltered account, but it gives you more flexibility in how you choose to spend the money. A small amount of savings in the parent's name is unlikely to affect your EFC very much or at all since most school's calculate a reasonable parental asset allowance (home equity, savings) that doesn't count towards the EFC.</p>
<p>But read the book.</p>
<p>We are considered Low income just cause we have 5 kids, I think ,but we are debt free and have a nice savings, I don't know if I did it right or not, but I tried one of those fasta calculaors things and EFC is about $5,600 a year--with 4 kids still at home, and husband making approx 52,000 a year. That is fine, I am just worried about having to take out loans for the extra $18,000 or so per year--if he goes to a respectable College. What is adjusted gross income mean anyway? Is that REGULAR GROSS income --what he makes per year or after all the deductions? He makes $52,000 but after all of our deductions for kids & retirement --it is much less. I used the $52,000 in the calculations. ??</p>
<p>Adjusted Gross Income is after some of the deductions...I believe it is usually reported as the last line on the first page of the 1040.</p>
<p>An EFC of $5,600 on an income of $52,000 sounds about right give or take a thousand dollars.</p>
<p>If you are worried about the balance of the college cost, here's generally how it works using two different examples:</p>
<ol>
<li> Public University (that does not meet 100% of financial aid).</li>
</ol>
<p>Cost: $18,000/year</p>
<p>Resources:
EFC $5,600 (combination of current income and savings)
Student Loan $2,000
Student Work Study $2,000
Resource Total: $9,600</p>
<p>Funding Gap: $ 8,400</p>
<p>In this case, since the school doesn't meet 100 percent of financial need, the $8,400 "gap" will need to be met through student work, parent savings, or parent loans. Even if your son is very smart and this school can offer a merit scholarship of $5,000, there will still be a funding gap.</p>
<ol>
<li>Private University/College (that meets 100% of financial need)</li>
</ol>
<p>Cost: $40,000</p>
<p>Resources:</p>
<p>EFC $5,600
Student Loan $2,000
Student Work Study $2,000
Need Based Grant $30,400
Resource Total: $40,000</p>
<p>Funding Gap: $0</p>
<p>These examples show that for a family that has a financial need, the net costs to the family can be lower to attend an "expensive" private school than the lower cost state university.</p>
<p>There are lots of factors that affect these numbers, this is just a characterization, but the fact remains that many schools provide very good financial and merit aid. Some LACs are especially known for wanting boys to attend their schools and essentially discount the tuition through merit and financial aid in order to attract smart boys to their schools.</p>
<p>My experience has been that many low and moderate income families send the wrong message to their children..."We can't afford a private school, but the local state university is less expensive, so that's where you will go." The result is the student coasts through high school because they are destined to go to State U.</p>
<p>The message should actually be the opposite.</p>
<p>The message for your boys is that doing well in high school now can easily be worth over $100,000 in financial aid later on at a very good school.</p>
<p>My daughter will be attending Columbia in the fall, and it will cost us slightly less to send her there than to the state university.</p>
<p>Her boyfriend will be attending a second tier LAC...by second tier, I mean not commonly recongized in the top 100, but the difference between this school and what Whitman or Macalester has to offer is relatively small. He will be attending at nearly a free ride because he comes from a middle-class family, he did well in school (top 10%), plays an instrument and was attractive to this LAC even though he isn't a genius. They could put together a financial aid package that made attending this LAC much less expensive than the state university.</p>
<p>Some people refer to it as discounting the tuition, others as buying students. But no matter what you call it, there is a difference betwen the sticker price and the real price at many schools if you understand how financial aid works.</p>
<p>Forget the 529. When calculating EFC later on, those plans will be calculated at 100% for education. 3 years will probably not be long enough to save significantly for 5 kids. Store away what you can while you can. Retirement is right around the corner.</p>
<p>Save for retirement--it has been pointed out that there are special subsidized loans and scholarships for college kids--but no such things exist for Retired People!</p>
<p>
[quote]
subsidized loans and scholarships for college kids--but no such things exist for Retired People
[/quote]
Yeah there is, social security and medicare. But the general advice is still correct. Cat food and canvas walls in retirement get old after a while.</p>
<p>Ok, I got it, the adjusted gross is accually, for us, a little more than my husband makes a year -once we add on some of the Taxable interest (only about an extra $50). So tell me, how do these Fasta forms figure in that you have extra dependants,---is that when you get extra grant money, but it has no effect on your EFC ?? On the next page of tax return, after deducting the 5 dependants, our taxable income is only like $15,000 a year---compared to Adjusted gross of $47,000. I take it --it helps to put alot in your retirement (we have 401K) to keep your adjusted income below $50,000 ??? So they do not consider Retirement (including 401K's) when figuring out your Fasta?? Thanks for all this info, any advice on Good Books explaining every detail about ways to prepare for this Financial game. And yes, I am one of those parents telling my kids they will have to go to lesser college because that will be all we can afford. I am not willing to Co-sign Big Loans, that is the bottom line for us. We despise debt, have never even bought a car unless we paid it in full.</p>
<p>Speaking of saving for retirement, we only have 6% of his income (I do not work) come out of his pay every week (approx $55), going into some Mutual funds (I know very little about this, but we do not have much accumulated in there it seems-Company does not match either), so if we decide to crank that up to maybe 10% every week, this would further reduce our Adjusted Gross Income for this Fasta form. Is this correct? We do not deduct any special things on our taxes at all, want nothing to do with that long form, just our kids and 401K.</p>
<p>The extra kids only figure in if they are in college too.</p>
<p>I found this <a href="http://www.collegeboard.com/student/pay/add-it-up/401.html%5B/url%5D">http://www.collegeboard.com/student/pay/add-it-up/401.html</a> and other estimators valuable in learning how the formulas work. PLug in numbers and see how they affect the outcome. If you don't work and don't have a "qualified retirement plan" you could also fund and IRA for you. If you're over a certain age you can actually accelerate the amount of money you pay in up to $5,000 per year (I think) this would reduce your adjusted gross as well.</p>
<p>Increasing your donation to a retirement fund will NOT reduce your income as seen by FAFSA that year as you will have to add it back in (worksheet B). Same goes with anything that is taken out before taxes, like flexible spending accounts for medical expenses. What it will do is put more towards your future retirement, and the amount in your retirement account will NOT count as assets by FAFSA, whereas in a 529 it does count as assets owned by you (not the student).</p>
<p>My son is starting college in the fall, and he has a small 529 plan (under 10,000) that isn't earning anything. We are thinking about withdrawing from it, investing it in a high interest money market, and then in December, paying the rest of his tuition bill with it. Does a withdrawal from a 529 need to be paid directly to the educational institution for it to be tax free? Or can the withdrawal check be paid to the individual or another account, as long as the withdrawal amount is used for educational expenses by the end of the tax year?</p>
<p>Withdrawal checks can be paid to the individual and education bill submitted later--but I'm not sure about the time lag allowed.</p>
<p>Your qualified education expenses added up for the entire tax year must equal to or exceed your total withdrawals from the 529 for that tax year, or else there are taxes and penalties due. The logistics of when and how are up to you, as long as the same tax year is involved. It is not necessary to write checks from the 529 directly to tuition or anything like that, though as a matter of discipline or simplicity you can do it that way.</p>
<p>The withdrawal exceeding college expenses won't be a problem, as there is less than 10,000 in the account, and he's attending American U, with an annual tuition bill of around 40,000, and almost no aid! We are anticipating being crushed by loans for the next four years.</p>
<p>The 529 funds do not have to be paid directly to the school BUT smoother if you do.
In our case, the first year withdrawal I had sent to me and I wrote check to school later same year. The end of year tax form from the 529 listed the withdrawal as 'non-qualified'. I guess because they can't tell how I used the money.<br>
The second year, I had 529 send $$$ directly to school and the tax form was listed as 'qualified'.</p>
<p>Probably not a problem either way since I had documentation of tuition paid for both years but it made me uneasy...as though it would be an issue if we were audited.</p>
<p>These things are not so easy to figure out!</p>