I currently have 2 in college, remarried 5 years ago and recently sold my home that sat on the market for over 2 years in a depressed area. Now that the house has sold and I made minimal profit, Im left with considering my options of cash on hand to pay the next 3.5 years of college costs.
Cd’s vs a late 529 plan. I would like to have 30,000 a year saved for 2 years. and 15,000 for upcoming semester and then one year with 13,000.
The financial planner felt the 529 was really to late to enter into. I do not see our income rising over the next 3.5 years. Any increase in tuition, or room and board I should be able to manage from our current income.
I also do not have a plan in place for any summer school or study abroad costs, but girls would have small student loans to cover those costs… The above costs would utilize all moneys from the house sale and current balance of savings I have held onto since my divorce that were earmarked for girls education.
Our prior 529 has been given to my ex husband to allow him to pay his share of costs.
Any thoughts would be appreciated.
How much do you need and how much do you have right now?
Was that your former primary home or your only home and you are renting now?
Do your kids get any need-based financial aid?
@BelknapPoint
Why would it be too late for a 529?
It’s never “too late,” but to provide any advice about a 529 vs. CDs, one would need to know all the details: how is the 529 money invested, what are the terms of the CD, etc.
Currently, I live in my current spouses home owned by him and sister that is about an hours drive from my primary home that was rented 60% of the time the last 5 years.
I have 1 at ND (FA with scholarship) currently paying about 27000 out of pocket split between ex husband and myself, and 1 across the way at St Mary’s (freshman daughter merit award and small amount of FA) 17000 out of pocket who has applied to ND as well.
Current spouse contributes 0 to education. I work but took large pay cut after multiple carriers left Il for TX and AZ.
I have some other savings, and 401k.
I am using currents numbers for Sophomore daughter to calculate what is needed with 5% increases. Same for Freshman daughter.
The 529 I was told does not allow enough growth over the 3.5 years to justify the paperwork. I felt that planner did not feel I should tie up the cash I currently have or any risk of a loss.
The cd rates from Nov to Nov with local credit union or minimal.
I have about 25,000 more in cash then when oldest daughter started in school 3 semesters ago.
I just want to be sure I have a solid plan to pay my share when it comes due.
My current salary, plus ex husbands, plus current husbands … makes me think that we could at some point be asked to pay slightly more under the CSS profile
I have taken a portion of dollars from the sale to set up an emergency housing plan should something happen to my current spouse, I would have enough to have a down payment for a small house or condo. I also have a 401k and 2 pensions from previous employers.
My goal has been to give both girls 0 debt and to keep my rainy day fund in tact. I have enough cash on hand to meet all costs as outlined to date. If youngest does transfer… I can pull additional dollars from my current income.
Sorry this is so long winded. The 529 I thought I should review further.
Personally, if my kids were already in college and I was opening 529 accounts for them (you need a separate account for each beneficiary), I would be investing the 529 money in something very conservative that had practically zero chance of incurring a loss. Of course, your returns won’t be spectacular either, but how will they compare to CDs through the local credit union? With CDs you have your money tied up for the term of the CD, unless you are willing to suffer any early withdrawal penalty. 529 funds can usually be accessed at any time without penalty. The paperwork to open a 529 is probably more than it is to buy CDs, but really, it’s not that bad or too complicated.
I know of 529 plans that have “guaranteed” investment options that are currently paying better than 1.5%. Do some research and compare that kind of 529 investment with the rates you can get with CDs.
Taxes: you won’t pay any income tax on 529 earnings that are used for qualified education expenses, but that’s probably not a huge benefit because your earnings would be relatively small with a safe investment and short investment period. However, you may see a better tax benefit if you live in a state that allows for a state income tax benefit for 529 contributions (usually a tax deduction up to a certain contribution limit). I don’t think you’ll see any state tax benefit for buying CDs, either with the initial investment or with the earnings.
In my state’s 529 plan, you can deduct $5K per year as a single and $10K as a couple from your state income, which is a benefit to having a 529. I know of people who fund the 529 on December 31 to get the deduction and then use the money to pay tuition in January. You can open the 529 online in my state and it was pretty easy, I transferred money from another account to fund it each year. I also opened two other 529’s in my middle sons’ names to spend down S17’s account to let him get, maybe, some FA when he goes to college. My rate of return has been better than a savings account and I haven’t had to tie it up like with a CD. As I said, in my state, a primary benefit is the tax credit.
If your state has something similar, it might be worthwhile looking into.
Also, I don’t know if you have any issues with the capital gains on the sale of your house but you should talk to your financial planner about that, too. I don’t know if you have to put money into a new home in order to avoid those taxes.