Great job people. We started with both kids 529 around 5 or 6. We were planning to use current income also. We front loaded our retirement. It all worked out but having that 529 helped a lot to offset future spending. Never had close to 100% but again we knew we would use current income also.
Yes, start or have your kids start a retirement account now while in college. We did it while they were in high school. Not a lot of money but it was fun for them to watch it increase. If they do nothing they know they will have X amount for retirement. They both know they have to grow that number. Both put in the max yearly from working. Both keep watching that account grow. Both got into stocks at the 52 week and over lows with divedend stocks. Both love watching those accounts grow as certain sectors come back. Both have jobs now that they can invest etc. They know what they did with $3,000 from working in college. Both have been putting small amounts in monthly like $100 - 150… It doesn’t matter just keep putting in. As their “real jobs” start they will be able to afford much, much more. They have learned to pay themselves first. We have done our jobs as parents
Another vote for young people to start their retirement accounts early and for young parents, to start the 529 very early. We were also fortunate to have grandparents gift money annually into the 529 and we’ll plan on doing that as well if we are blessed to have any grands.
We’ve drilled into our kid the importance of saving from a very young age. Just because you make it, doesn’t mean you need to spend it. Living below your means, not buying the house with the max mortgage the bank will give you, etc isn’t stressed enough IMO.
I think it really depends. We started 529 plans for each kid when they were little (under 5) and put in two big chunks ($55k each time) for each kid - 5 years apart (which was the maximum for doing it that way back then). We elected the pre-diversified portfolio at Fidelity and while it has performed OK, it has under-performed the market. My other investments have done much better over the same time period. Their $$ hasn’t even doubled so while we do have a nice chunk for each kid, it would only cover about $50k per year in education costs (which is a nice amount, of course, but not enough to pay for many private colleges). We will end up paying any shortfall (or there could be a surplus if they end up at a state flagship) out of other investments. I’ll add this caveat - one kid’s account was hit pretty hard back in 2008 and because of the diversification strategy it didn’t recover as strongly as other investments. My younger kid’s account is actually bigger because of this - despite being started later.
There’s no question the OP and all of us have been lucky enough to be invested in what is a time of investment growth the next gen won’t see again. There could even be losses as there have been some years.
But look at it another way - whatever you put aside will help you later when it comes time to college. Whether it covers the entirety or just some, it’s still will put you in a better position.
If nothing else, it’s forced savings with a purpose (if you set up autodraft) and less worry later.
We started 529 for our kids when they were small and contributed every month (retirement first, college second). And for most of their childhood we made less than $85,000 a year in a HCOL area.
We were definitely fortunate that we had nothing major go wrong with the house, illness, job loss, etc. We did stop contributing during the recession (2010-ish?) and started banking it in case I lost my job. We should have gone back to contributing! But they were closer to graduating from HS and we did have a plan to pay the house off early (which we did) and earmarked what we would have used for the mortgage for college.
My kids will graduate with no debt…and we won’t have any either!
I’ve heard people say “I can’t afford to pay for college” and I think “if you can’t why do it, why you think your kid can?”
So while weren’t able to save an entire 4 years (x2 kids), what we did save in the 529 was hugely helpful.
"We had nothing major go wrong with the house, illness, job loss, etc. " But many people do have things go wrong, through no fault of their own, and cannot contribute to a 529 or retirement. Just for perspective. It isn’t always about prudence. Financial aid can be really helpful in those cases.
We too started a 529 when our daughter was born. I realize everyone’s circumstances are different, but I would strongly recommend it if you have the financial wherewithal and discipline. I vowed not to place my daughter in debt coming out of college, and I’m grateful that it seems to have worked.
Fully agree and great advice. As father to a daughter who will be graduating debt free from Purdue next spring, we should both offer gratitude to President Daniels for freezing tuition for the past 8 years. Boiler Up!
I absolutely recognize that things beyond ones’ control can go very wrong and I recognize how lucky we were.
We are also fortunate that we have 4 community colleges (2 are outstanding) within 40 minutes. My kids could have lived at home, gone to one of those, and then transferred to a state school (2 within 30 minutes) and lived at home if need be.
We are thankful for our for our options, our good fortune, and the priorities we made for our family.
DC #1 started an investment account when they were 20 (they had been working year round since a senior in HS and saved quite a bit.) They started a Roth at 21 - with $1K and contributes $50/month (not a huge amount but gets them in “saving/planning mode”. )
DC #2, at age 20, opened an investment account this year. I am glad my spouse encouraged them and got them both started on this path.
I did NH and Nevada or Fidelity and Banguard for my two kids. Note 529s do have admin fees. They are a great deal but they are more costly in management expenses than a similar target based mutual fund.
I’ve not done a Roth. I don’t believe in them because incomes and taxes should be lower when you remove the money. I’m assuming wealth that will be invested in tax free assets such as muni bonds.
But if I were to have one it’s be with vanguard or for stick investing Schwab, Ameritrade, Etrade, Interactive Brokers….they are all fine
Except if we are talking about teens and summer jobs, their tax rate is likely zero. Put the money in a Roth now, and let it compound for 50 years. Or they can take it out if they need it down the line.
My kid puts his summer earned income into a Roth, except the house-sitting cash-based gigs that aren’t reported. That’s his spending money.
Yes, and another good reason to set it up as early as possible (preferably in high school) is that they can withdraw the principal after 5 years, which might be just when they need it for grad school or getting started in a career.
We’ve used Vanguard for 529s and IRAs, since the low costs outweigh the somewhat unintuitive website.
We use Vanguard and Schwab for 529s and Roths. I also don’t understand not using Roths due to ‘lower taxes in retirement’. My oldest has only earned $5-6k each year thus far and therefor hasn’t owed any taxes. It doesn’t get lower than that (to my knowledge).
She has put all her earnings into her Roth, it gets to grow compounding for the next several decades and gets to be removed tax free. It’s the best deal I can imagine for her, or any other teen in college.
My D put almost all of her internship earnings into Roth’s. She put her initial pay into the company Roth 401k and when she got her tax return, the rest. Paid almost $0 in taxes. She’ll never have it that good again. She did this with 3 internships in college and has $$$$ between the two accounts. We did Merrill since its really easy to transfer from her BOA accounts. Definitely start them in high school or college. I wish I had her start in high school.
When our daughter was five, we could finally begin to put aside a small amount each month. My husband and I disagreed about where to invest the college money, so our compromise was Iowa 529 and Vanguard Total Stock Market Fund accounts. (I was not enamored with capital gains taxes.) Both have done very well, but I admit the total stock fund has done better. There were some terribly scary years, though!
We did not invest in Washington’s GET program because at the time I believe the money needed to be used for Washington state colleges.
We are kicking ourselves for not setting up her Roth last year when she did have earnings because it’s unlikely that with a summer class that she will get a job this year.
