Best way to save when only couple of years to college?

Paying for College
1

<p>Ok..so I am starting to look at EFC, now that my D is going to be a junior. Found that we fall in the middle-class category..where we don't qualify for ANY need based aid. We are not rich to afford private tuition. We are a 2 income family but cannot say how long that will last, given the current market/job opportunities... Is it too late to start on a 529 plan? We are in CA, which does not offer 529 tax break.</p>

<p>What is the best way to set aside money for college. Also we do max out retirement and have reasonable home equity. But by no means, we feel financially able to afford private tuition. We can meet state college fees but wondering if there is any late investment planning that anyone has done that benefits setting aside some cash reserves for college.</p>

<p>Hoping to hear from the expert parents here, thanks!</p>

2

<p>It’s not too late to start a 529. I don’t know of any magic investment oppys for college. Make sure you D applies to at least one affordable option in-state. Check out the threads on merit aid for other options.</p>

3

<p>Given such a short time to save up, I think your best hope is Merit-Aid.</p>

4

<p>Colleges have monthly payment plans so you don’t have to pony up all the semester’s tuition prior to the upcoming semester.</p>

5

<p>Pretend you’ve got the expense now, but instead of sending to a college each month, you pay the 529 (or whatever savings vehicle you decide on). As far as which savings vehicle/investment? Those that could yield the highest reward carry the most risk. I wouldn’t be comfortable with anything like that when I needed the money so soon.</p>

6

<p>If your EFC puts you in “full pay” category, then you’re really an upper-income household - even if it doesn’t feel that way. We seem solidly “middle-income” while “full pay” too, because we live in a very expensive metro community where relative suburban house price is lock-step with relative quality of neighborhood and its school system, while we’re subject to high local taxes too (state, real estate, sales, municipal fees, etc.) I’d be surprised if we net 50% of our gross income after all those taxes. Perhaps you feel the same way.</p>

<p>Our state-sponsored college savings plan is upside-down, so thankfully we never invested in it. We’ve long lived on one salary for household expenses, and banked much of the other. I like the prior post’s recommendation of “paying in” a set amount each month as a savings mechanism, in advance of any discretionary spending. We also reduced our non-essential purchases, drive six-year-old cars, haven’t been to Europe in seven years, don’t shop at Saks or have expensive recreational hobbies, but we’re not deprived by any means.</p>

7

<p>Well…technically not full pay…but over 40K EFC. Yes, on paper it is like upper middle, but we live in SF bay area where most of the money is spent in mortgage payments. Also we just got a real 2-income only in the last couple of years and I am not comfortable in the long term income potential continuing beyond 3-4 years. </p>

<p>It could very well be, that in 5 years time, none of us have jobs or have half the income. I am leaning towards setting aside a monthly sum so we can tap into something concrete when next year hits. Instead of relying heavily on plus loans. </p>

<p>No, we do not take vacation, yes, I did buy a new car but after 14 years of old car :wink: We are not deprived either but worried about long term financial stability. And yes, my D will have safety which is at the UCs (hopefully they dont increase their tution further).</p>

8

<p>Start living now as though you were paying whatever it is you feel you can afford to pay for college, and just slap that money into a high interest savings account each month. While it accrues, take a look at CD rates and 529s. You might find something you like.</p>

<p>We have just one kid so 529s seemed a risky investment option. We chose laddered CDs instead. We started saving even later than you, but it has made a difference.</p>

<p>Good luck!</p>

9

<p>Sending a child to a UC costs about $32k per year right now. By the time your child goes, the cost will likely be around $35k. The UCs have very expensive room and board costs. </p>

<p>Since you say that your EFC is over $40k, how much do you think you can pay each year? Do you have any other children to put thru college?</p>

10

<p>I’m not a financial advisor, but I can share my thoughts about how to invest given your short time frame.</p>

<p>Since you are only a little over a year away from needing funds, you do need to stick to “safer” investments. The funds in a 529 will grow tax free, but you don’t have a lot of time for the earnings to grow at this point. If you decide to use a 529, make sure you are happy to limit the use of that money to ‘qualified’ expenses. And resist the temptation to invest in anything aggressive. Bond and income style funds are good.</p>

<p>Mostly what you need is cash. So I agree with those advising you to start saving now. It will help a lot even if you just have a small pot of money saved before college begins. So first think about how much you want to have in ‘safe’ money - absolutely guaranteed to be there at the beginning of next year, meaning you put it in a savings account, and set a goal to save that between now and then. Use an online savings account, you might find some as high as 1% interest. Whew, let the good times roll!!</p>

<p>But you want to know how to get some earnings, too. The only thing I would put money into at this late date is a corporate bond fund, or maybe a municipal fund, but that would be a distant second choice. Vanguard has some low cost options that will give you some dividends and probably some growth. But nothing’s a sure thing, so don’t do this with money you’ll need the first year. Or two, if that’s where your comfort level is.</p>

<p>If you want to be just a little more aggressive, you could try a ‘balanced’ fund. Something that calls itself more of an ‘income’ mutual fund, heavy balance of (50-60%) bonds, maybe weighted towards treasuries. You won’t get a big return, but the dividends you get will maybe pay for some books.</p>

<p>You can save for college in a Roth IRA, and use the money for retirement, best case, or college, if needed. Your income may be too high for that, but if you can contribute it will give you a tax advantaged way to save a limited amount without opening a 529.</p>

<p>Last, you can weigh the use of the 529 with the use of tax credits for education. The AOC has been extended through 2017, so that credit can be used to offset your contributions out of cash/savings. But it can’t be used against the 529 funds as they are already tax advantaged. But again, your income might be too high to take advantage of the AOC. So you can check into that.</p>

<p>So maybe breaking down your savings objectives into two pots will help. One for the first year or two, another for the last two years.</p>

<p>That’s all I’ve got. I hope it helps!</p>

11

<p>This is probably obvious, but I don’t think anyone has said it… put any savings or gifts recieved from relatives, etc. in YOUR name in whatever kind of account you choose, not in your kid’s name. A 529 is in your name with your kid as the beneficiary, and that is fine… the asset is still considered a parent asset for financial aid calculations, which is better in the FA calculation. </p>

<p>Also, when you get FA offers from schools, you will likely do better at some schools than others. It does not hurt to ask the schools that gave less aid to please “review” your FA again. Let them know your cost of attendance is less at another school, but your child really likes THEIR school – can they help make it more affordable? We did this, and my D got a $9,000 grant and work study from a school that had offered no FA initially. Now… another school on her list did not budge an inch. But fortunately she wanted to attend the school that gave her the grant anyway!</p>

12

<p>Forget saving for college. Too late, and it actually hurts (more cash savings, higher EFC).</p>

<p>Take all your money and pay down your mortgage and contribute to retirement plans. Some college take into account home equity and retirement plans, but not all. Even so, there are higher protected amounts for those.</p>

<p>When kid starts going to college, divert that cash flow to paying for college.</p>

<p>Note: Your EFC is a year-by-year thing. If one of you looses a job, your EFC will drop accordingly. You may need to file a lot of proof, but that is nothing new, especially in the past few years.</p>

<p>If you need more cash, take out a home equity line. Think of it as taking out the money you had stashed away over the past few years.</p>

13

<p>Very simple, but very difficult to do. Stop spending. Anything that is discretionary, put it down. You do need to pay the mortgage/rent and whatever other loan obligations that you have. Everything else you need to see if you can cut down or out, including utitilies (cable, internet, phones, gas/elec). Start planning trips so that you cut down on gas usage. Start doing things with friends, so that only one of you drive. Start looking as to how you can cut toiletry, house items and food down to the core. That means no cute shoes, even on sale. No new dresses even from Good Will. We are talking some serious cost cutting. Some have HAD to do this when a breadwinner is laid off or takes a cut, so at least you are not doing this under that kind of pressure, but it can show you how low you can go in living expenses. I don’t know what your salary is, but if it is in the middle to upper middle and upper income stratas, cutting your life style down to what people who truly qualify for a lot of financial aid is a painful and humbling experience Yes, I 've done it and I’m a wimp. That is one reason, though it was not a conversion factor for me, that you don’t see me envying those who qualify for a lot of need. I know what it would take on my part to even come close to a small part of what such families undergo. Hurts.</p>

14

<p>It doesn’t exactly hurt either. First of all, in most all cases, having the money gives you a lot more flexibility. Very few, though yes, there are some, lose much on having money saved. The exception is with students who get hit 20 cents on the dollar directly for any assets owned the day FAFSA is filed. Parents get an allowance and it’s 5.6% of assets over that allowance. Not a bad deal to be asked to pay a little more than a nickel and penny on each dollar you have stashed towards your kid’s education.</p>

<p>The fact of the matter is that it is highly unlikely 100% of need is going to me met anyways. Most schools gap. Some gap terribly. WIth an EFC of $20K, if the a school gives your kid only enough aid so that you gotta come of with $40K, it’s rather a moot point that you could have gotten that EFC down to $15K if you had not saved that $100K. I’ll take that $100K and the higher EFC any day. Yes, having $100K over the parent;s protection allowance does raise the EFC by $5K. </p>

<p>For those on a precipice where one can lose more than one can gain, such as being on the brink of a Zero EFC, that 's a whole other story. But even then, most of the time, it’s better overall in one life, like the vast, vast majority of time, to earn more, save more, have more, even if you have to pay more as a result for college.</p>

15

<p>Just two brief comments. As you probably know, any savings you have will have a minimal impact on your EFC. The formulas only take 5% from parental savings and a 529, so savings is very worthwhile, in my opinion.</p>

<p>Second, we are reducing our retirement contributions now in anticipation of the fall. We have been maxing out, but don’t expect to keep that up for the next four year. It also bugs me to have so much money going into the retirement account when the market is so high, so we are cutting back more now, and will up our contribution when the market goes down, but at this point don’t even plan to capture the entire corporate match.</p>

<p>I hate to leave money on the table but there’s no other way to fund college without debt, and debt is, to us, an unacceptable option.</p>

16

<p>Within a 529, pick one with low fees that is widely diversified. There are reviews of many of the programs online. Vanguard’s Nevada 529 is one of the ones with the lowest fees. High fees can rapidly eat up returns.</p>

<p>The stock market is at an all time high. It may not be the best time to put new investments into stocks. You can start the 529 with an investment choice that has a lower percentage of stocks, and then transfer the money online to a choice with a higher percentage of stocks as soon as the next market downturn occurs. (Everything works on a cycle).</p>

<p>For a simpler approach, choose an investment option that is age based. That option automatically moves your investments into conservative investments as you get older and ready to start college. </p>

<p>Transfer any savings or investments (other than a couple thousand of spending money) that you have in the student’s name to the 529 in the parent’s name.</p>

<p>The best way to cover college costs is to put the time and energy into test prep and working really hard on your classes for your junior year, taking some AP classes. You may get much more money from a college that offers a large amount of merit aid than you will be able to save. Also, don’t skimp on the number of applications, and put a great deal of work into them and into essays. It is worth an extra $50 application fee if it returns a $500 or more in merit aid offers. Also, look into Honors Program applications that may offer merit aid.</p>

17

<p>Lizzie, good thinking- many advising to keep socking away into retirement (eg protect the parents first), and go loans or home equity for college if you have to. I’d steer clear of any debt for parent or student if possible. Am not sold on the 529 approach - too many friends have gotten burned on them, and not a good tool (nor the stock market) for short term need. CD’s not paying very well, and if you miss the deadline to liquidate, the funds will be locked again. I would also recommend coaching your student on the realities of college expenses, learning how the schools you’re interested in evaluate aid of any kind, and doing lots of homework ahead of time on available scholarships - plenty out there for those who take the time to investigate.</p>

18

<p>Newbeinca, my brother who lives in your neck of the woods, is now going through a job loss situation and very painfully tightening the belt. We did the same some years ago and, yes, it hurt. We’ve loosened up, but still should be taking more austerity measures. It’s really the only way to save the money in the present. Short of finding more money through more pay, it comes down to cutting down on expenses, which means very painful cuts, and then putting away that money somewhere, whether it in a 529 plan, a retirement plan, or just plain in the bank. Some 529s do have some great saving in state income taxes and that can help stretch the contribution. </p>

<p>I can tell you that cutting the costs down, really shows you how much you are living luxuriously. Our family, especially our kids felt that we had a tight budget as it was. Until I put in the squeeze. And still we were living very well indeed.</p>

19

<p>Thanks a lot for all the replies. Got some great ideas. Yes, cutting back savings, maxing retirement accounts (to some extent) and opening up a 529 or a ladder CD is what I am considering. I still like the 529 (maybe just bonds and cash - age appropriate) as it sort of blocks the money for education and forces the savings to go for college. Heard about the fidelity 529 plan with cash back from credit card also. Have to compare fidelity costs with another low cost (such as utah or nevada plan).</p>

20

<p>Other persons reading this section should investigate whether their own state offers a state income tax deduction for 529 deposits. Depending upon your situation, it can be a major incentive for putting money into that system. Some states only offer tax benefits if you invest in a 529 controlled by your own state. Also, increases in value in 529 accounts are exempt from federal income tax if used for valid college purposes (which can include room, board and books). In addition, when applying for financial aid, 529s in a parent’s name are treated much more favorably than savings in the student’s name. (Money in a parent’s dedicated retirement account is typically not considered at all).</p>