Paying for college

Parents Forum
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<p>Venting here too. Just called the College Bound Fund which manages the 529 suggested by the Morgan Stanley financial planner about 4/5 years ago when we set up plan (we rolled into it some $ saved in regular savings). Turns out it is an 'aggressive growth' 529 so, although it is its 'most conservative' mode right now (w/college 1 year away) it's still 40% stocks. </p>

<p>We specifically asked fin planner to give us a 529 we didn't have to think about & would take son right up to college (i.e. progressively conservative). Hard lesson learned: can't give up full management of your $$ to someone else. Now, since it's still stocks we've lots some $$ w/the market down turn. </p>

<p>The only question--to sell it all right now & convert it into a different (all bond) 529 or wait & see what the market does.</p>

<p>529 admin wouldn't give me the low-down on exactly how much we've lost since hub is the primary account person. She did say that the only reason this seems 'like a bad thing' is because of the market--if it were up, 'you'd be happy.' Um, not really. Even w/my minimal financial savvy knew I wanted it secured in bonds, etc. before college.</p>

<p>Tough lesson learned...!!!!</p>

<p>Glad you haven't lost $ on your 529, Ijmom. Hope it continues steady, at least.</p>

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<p>Our 529 plan was all in "age-based" funds that became increasingly conservative as the child approached college. I think ALL 529 plans should be invested that way, IMHO. Current downturn has not had much effect our kids' accounts, but S is 1 year into college and D is only 2 years away, so the funds are pretty conservative at this point.</p>

<p>We took the approach of draining all tax-advantaged accounts first. If something weird were to happen and the kid finished college with money still in the account, we'd have to pay taxes on the earnings. So our plan is to drain 529's and Educ Savings Accts, then drain savings bonds (gifts from grandparents, over the years they did add up!), then take out a home equity loan. </p>

<p>Ijmom, if you start by taking out a parent loan, then aren't you owing interest on that amount right away? You'd have to be SURE that your other investments were going to grow at a rate higher than the interest rate you'd be paying on the loan for this strategy to make sense at all. And there's no such thing as a sure bet right now. (Except that no loan = zero interest owed).</p>

<p>(edit - also to Ijmom - our money is at Fidelity too, but they have many options to choose from. It depends which option you chose as to which funds you're invested in - do NOT assume that "they won't gamble with 529 money." They will do whatever the stated goals are for the fund you chose, and if you didn't chose an age-based or conservative fund, if you chose an aggressive-growth-stock-fund instead , then your money is in stocks.)</p>

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<p>Interesting, Lafalum84. Thanks for sharing your plan.</p>

<p>Wondered if anyone had any thoughts on whether it would be good, now, to sell the stocks (only about 5 grand) and move everything over to a bond-based, no-risk 529 fund? Son is going to take the $ out in about a year for college so not sure whether it would be worthwhile or just continue to gamble (even though hadn't started out intending to!) on the market for 40% of our 529?</p>

<p>I know it's not a ton of $$, but it's painful to (in retrospect) see the steady progression of small deposits ($300 here & there) being drained away by stock decline.</p>

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<p>Jolynne, that is an interesting question. While we were smart about the 529 plan, we also had a smaller amount of money in Coverdell Education Savings Accts (formerly called Education IRA's) that only used regular mutual funds for investments, so D's money there is in an account that's 60% stock, 40% bonds. I don't have the nerve to peek and see how much that's fallen. I think I'm going to trust that it will rebound somewhat in the next 2 years, because moving it out of there into an all-bond fund means that I'm turning a paper loss into an actual loss, and I'll miss out if/when the market does rebound. But I will say, it is indeed tempting to move the money out now to something that, at worst, won't get any lower.</p>

<p>Sorry, I don't have an answer for you if you'll need the money in a year. Ick.</p>

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<p>Lafalum84
I think we put our 529 money to 80% equity at the time (way back when we started). Then last year, Fidelity did some kind of transfer from old to a knew.
I think they may have chnged to 70% equity plan (or age based) as they were not offering 80% equity anymore. </p>

<p>I just went to their website and getting money out is very easy. At least that is good news.</p>

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<p>Yup, I called Fidelity on Monday and the money was in our checking account on Wednesday!</p>

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<p>Didn't you have to fill out a form?
I downloaded a form which I need to mail to them with the amount to be distributed.
I didn't know you could just call.. do you have to have a standing order of some sort?
Thanks</p>

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<p>Thanks, Lafalum84, for the thoughts. I guess that's the choice--wait and see if market rebounds or cut our losses now. I suppose that's the eternal question when playing the market...just wish I had some expertise to know which way to go, although as you said, turning it into a paper loss is very final.</p>

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<p>Jolynne, anyone who knew the answer to our question wouldn't be worrying about paying for college. If someone REALLY knew how to time the market, they'd be lounging on their yacht off Tahiti, ha ha.</p>

<p>Ijmom, you can fill out a form or you can call their UFund phone number, 1-800-544-1914. It might depend how you set the account up, but we did most of our investing via an automatic monthly transfer from our checking acct, so all I had to do was call and tell them how much to transfer into our bank account of record, and they did it. If Fidelity doesn't already have your bank account info then you might have to fill out the paperwork anyway. Either way, you should get the money fairly quickly.</p>

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<p>
[quote]
Didn't you have to fill out a form?
I downloaded a form which I need to mail to them with the amount to be distributed.
I didn't know you could just call.. do you have to have a standing order of some sort?

[/quote]

I don't have a 529 with Fidelity, but we do have other accounts there and the easiest way to put money in and take money out is to just have the account linked directly to your bank account. Once you provide your details it takes a few days for them to set it up, but then after that you can put money in or take money out with just a quick phone call and it usually occurs the next biz day.</p>

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<p>Most of the accounts I work with are accessible by internet. H is the primary on many accounts, but I set up all the internet access passwords, since I'm the one who does all the investing. Information, such as account balances, is easily accessible.</p>

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<p>A couple of things to note: just because one is in bonds doesn't mean that the investment is risk free. Also I agree with Rocketman08 that any $$ you will need in 1 year should be in risk-free vehicles--cash or CDs or Treasury money market account. This is not gambling $$, unless you really don't need the $5K next year after all.</p>

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<p>Thanks Everyone</p>

<p>Lafalum84, We are also doing monthly saving directly from the automatic transfer from the bank. I'll just call in that case</p>

<p>Also, I just learned that we pay monthly for the for the college dorm. That is very good news as in our case dorm costs much more than the college fee.</p>

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<p>True, Lafalum84...if we knew the market future, we'd all be rich..!</p>

<p>ellenmenope---so you'd advise switching it into a risk-free CD or Treasury money market account? Thanks for that thought & differentiation from bonds. So completely true...we do need this $5k, no question about that! Will figure that as another option, instead of just skipping it over into a different style 529, as plan administer suggested. No sure what the fees, etc. would be; will find out.</p>

<p>I've heard some general advice on--don't pull things out of the market, just ride it out---but, we need it in a year, this is not some long-range, 10 year plan (anymore!!).</p>

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<p>
[quote]
I am sure they won't gamble with 529 money and invest in a combination of stocks and bonds based on child’s age.

[/quote]

Way too many people view bond investments as "safe". Nothing could be farther for the truth, even high-quality bonds decline SUBSTANTIALLY in value during recessions (which is why their yield rises). The only safe bonds are the ones that you hold to maturity. Since practically no mutual fund holds bonds to maturity, there is no such thing as a safe bond mutual fund. If you don't believe me, open the chart for most any bond fund and see what happened in April 2004.</p>

<p>
[quote]
Turns out it is an 'aggressive growth' 529 so, although it is its 'most conservative' mode right now (w/college 1 year away) it's still 40% stocks.

[/quote]

Ouch, sounds like you are getting a new adviser. In my opinion finances for the average joe are a simple affair that ought to be taught in school, and would put the whole cottage industry of planners out of business. There are times in life when one needs to make sure that a fine point in the law will not trigger massive tax consequences, but for 90% of the population those are once or twice per lifetime, not an annual rite of passage. </p>

<p>1) Keep 6 months cash worth of living expenses on hand in case you are laid off.
2) Invest 401(k) only in index funds only -1/3 large cap, 1/3 midcap, 1/3 small cap. Keep it going until you are 10 years away from retirement. 95% of actively managed funds will underperform the index, and most people have close to zero change of finding one of the remaining 5%. You won't get rich fast that way, but neither will you get poor fast.
3) Don't put any money in the stock market that you will absolutely need in the next 10 years. Yes, I did say 10 years.
4) Save yourself some money and use TurboTax or TaxCut to do your taxes. I you make less than 200k a "tax adviser" will do the exact same thing but will charge you 20x the cost of the software, or more. Chances are they will do the same if you make more than 200k, as long as salary is the major source of income. The law does get complicated quickly for small business owners, self employed, etc, when a tax accountant may be useful. However, I know somebody who makes 30k from salary only who religiously goes to H&R Block every year, when they could file a 1040EZ online for free in about 10 minutes.
5) Learn about compound interest, it could save your life. Don't believe me? Just ask those folks who are loosing their homes because they did not understand what compound interest coupled with adjustable rates could do to them. People who pay minimum balance on their credit card fall into the same category.
6) Learn to read, and use the skill. Too many people just follow blindly what their adviser tells them to do, without questioning it. If you don't understand it, ask. If your adviser can't explain it so you understand it, don't do it. This is not targeted at the OP, just a general observation. Someone in another forum was repeatedly stating that 529 proceeds must be deposited directly into the school account of the student to avoid taxes --- their adviser had told them so.
7) Save at least 5% of what you make, preferably 10%. Anyone who makes $30k/year can do it, though there are usually plenty of excuses.</p>

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<p>Really good advice, GroovyGeek. I've learned now, there is no substitute for, as you said, reading your own financial reports and reviewing your situation. </p>

<p>The same fin advisor who put us into an 'aggressive growth' 529 also put my (tiny) retirement $ into a Morgan Staney acct that is annually assessing me fees. When I realized this & called him on it, he said, "yeah, you'd be better off moving it elsewhere to a non-fee account." Well, would have been nice to know that 5 years ago when I set it up! But, my fault--after hearing that a few months ago and having no idea where else to put it---it's still there. Will research, figure something out and call him Monday! Thanks for the encouragement.</p>

<p>I agree w/your advice re: the tax, too. We had an individual do our taxes this year who put something improper on re: my (tiny) home biz income (unsubstantiated deduction figure). When I called her on it (don't want anything unethical in my name) -- she changed it on the worksheet, but not the actual form. Thus, had I not reviewed it, I'd have been submitting an internally inconsistent tax form that would practically admit improper statements.</p>

<p>Read, read, read; as you said.</p>

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<p>Is there a money market option to the 529? What are the consequences of an unqualified withdrawal? (Tax consequences, deferred sales commissions?) You have to weigh those things in deciding to bail out your $.</p>

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<p>GroovyGeek, that's all very good advice.</p>

<p>I also suggest that people spend a few minutes playing around with savings calculators on the various websites out there. </p>

<p>For example, find something in your life right now where you could save $3 a day... say for example bringing your own coffee into the office in a thermal mug vs stopping by the Starbucks next to the office. If you manage to do something like that and save $3 a day then you'll have saved $90 by the end of the month. So let's say you continue your $3 a day saving activity from the time you're 30 till you're 60. Each month you put the money saved from brewing your own coffee into a Roth-IRA invested in a diverse market portfolio. At the end of that period you will have (assuming average historical returns)... wait for it... $139,300. </p>

<p>So simply for brewing your own coffee each morning, you can essentially write yourself a six figured cheque towards retirement. Also remember that this simple calculation doesn't consider the inflationary increases in the cost of coffee so the actual amount you save would be even more. Now $139,300 isn't enough on its own to fully retire on, but it's a good start towards a nice nest-egg.</p>

<p>I often hear people say "Oh, I can't afford to save for retirement now" often said while holding a $5 Starbucks in their hand... I just smile.</p>

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<p>
[quote]
I often hear people say "Oh, I can't afford to save for retirement now" often said while holding a $5 Starbucks in their hand... I just smile.

[/quote]
</p>

<p>Same here. Except I hear it equally as often from smokers.</p>

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<p>I don't drink coffee, or smoke... I should be rich ;-) lol</p>