<p>Sorry Eric, I don’t see where the 3.25 comes from or the 6% apr. </p>
<p>Let me get specific, and lets use 3 quarters instead of 2 semesters</p>
<p>2009-2010 UChicago $39,381
Payment due dates (some guess work) Sept 20, 2013, Dec 26, 2013, and March 28, 2014</p>
<p>Chicago says they would discount the tuition at 0.5%. Doesn’t that mean that I multiply
$39,381 x 0.995 = $39,184.10 and deposit that now before June 23?</p>
<p>How do you know that you should use 6% APR?</p>
<p>Their own calculators come up with something like $38,783</p>
<p>I’d like to understand where this number comes from.</p>
<p>Their calculator is accurate – or at least I get about the same numbers ;)</p>
<p>Let me keep it simple for you, if a bit inaccurate: Your money will sit for about 3 years before use, and each year UChicago will discount your tuition 0.5%. So in 3 years you have earned a 1.5% discount on the tuition cost. '09 tuition is $39,381, but you pay 1.5% less, or 98.5% of that amount:</p>
<p>39,381*.985= $38790.285.</p>
<p>The part you are not understanding, and left out from the simple calc above, has to do with inflation’s effect on your discount points. As you can see the amounts are not large, AND if anything you will overpay a bit. I have not checked to be sure, but I’m willing to guess that each college uses it’s most recent price increase to calculate unknown future years inflation rates. When the rates are known, they will modify the actual amounts. Last years inflation was the lowest in years and years, and we can expect future years to be higher. Or a lot higher, if you share my opinions what inflation will do when the country eventually exits recession. I was using 6% as a guess of future college annual price increases based on past data for the i529 consortium from the past 5 years. This 6% apr guess increases your discount 0.25% – or 1.75% rather than 1.5%.</p>
<p>I have a plan like this from a state and they just do the calculation based on school year - not as specific as you gentleman are calculating with exact payment dates. </p>
<p>In other words, with the state program I am with, whether you withdraw the funds for the first semester of senior year or the second semester of senior year, you get the same thing. The exact date of withdrawal doesn’t matter, just the academic year.</p>
<p>Therefore, I think the calculation is $39,381 x .995 x .995 x. 995 = $38,793.</p>
<p>I think the extra $10 discount ($38,783 vs. the $38,793 above) is the discount you are getting by depositing today, as opposed to July 1, since they say that for the first year the discount is pro-rated.</p>
<p>BTW, since you are talking about such large numbers, you know that normally you can only make a gift of $13,000 a year ($26,000 for two parents), but 529 plans have a special rule that allows you to make a gift of $65,000 in one year ($130,000 for two parents) into a 529 plan.</p>
<p>(.995)^3 is very close but not exactly the same as what I calculated. I can well imagine some plans using your method, and other plans mine. As a practical matter of wanting to figure out how much to pay, either way is fine.</p>
<p>The money stays in the contributors name barring death. Even in the case of death and only one parent, $13k/yr*3 years = $39k, or more than CRD wants to spend.</p>
<p>I don’t see a problem, even before taking into account the special rule Dadinator is aware of.</p>
<p>My method matches the i529 website to .999 accuracy, while Dadinator hits 1.0 when UChicago is checked. So he is probably right, and the base tuition is discounted an additional 0.5% for every year that the money sits until used.</p>
<p>lol, I checked Creighton, and Dadinator is off by 0.1% too much; while I am off 0.1% too little. I give up, and accept that payment will be within +/- forty dollars in four years. Did you really expect accuracy from anonymous internet posters ? ;)</p>
<p>EricLG, you are a gentleman, but I am not really sure which of our methods is correct. Heh, we were within a few dollars of each other, close enough.</p>
<p>ClassicRocker, as EricLG said, this is really not an issue. I just wanted to mention it. The instructions to IRS Form 709 explain the rules.</p>
<p>I wish I knew about this a year ago, before my S started at a school that is part of the Independent Plan.</p>
<p>OK, I could not leave well enough alone, and had to track down whether my or Dadinator’s method was being used. It was easy enough – I downloaded the pdf from the i529 website that had a listing of (A)colleges’ '10 tuition, and (B)prepay cost if used 5 years from now. A quick import into a SS, and division of A/B later showed that all colleges with the same discount rate had the exact same ratio. Since college price increases most certainly differ, it is not being used in the calc.</p>
<p>Hats off to Dadinator, although I got to say to i529: not pegging the discount rate to inflation is … inelegant.</p>
<p>I think 529 plan is just a Ponzi scam. Fund managers invests money your send every month and ‘promise’ you will get a certain % of return. However, this does not make common sense. For the past 10 years, the return on S&P 500 is almost flat while the tution on PSU (just an example) at least doubles. Fund managers takes a few % each year. There is no way fund managers can keep their promise when your children need to pay their tution in the future. </p>
<p>529 plan is just like the social security tax. We often worry about we cannot get our social security check when we retire. The difference is our government can print money while fund managers cannot.</p>
<p>For those who joined the 529 plan and cashed the promised check for tution, congrulations! For those who send money every month and need check in the next 5 to 10 years, be careful and good luck. When stock market tanks, the music will stop.</p>
<p>I hear what you’re saying, but in this case, the school promises to honor it. The risk is on them. I bought a prepaid plan through the state of Texas and they will be losing money when they pay my D’s tuition, but the money is coming from somewhere in the state budget. I think most state-run tuition plans have ended or have changed significantly, so as not to “guarantee” anything. Unfortunately, I only bought the public plan for my D, so I’m getting around $7,000 per year, which isn’t much now that she’s chosen a private school.</p>
<p>Your investment in this plan only ‘grows’ in the sense that you do not pay future tuition hikes. The colleges assume the risk of the stock market not keeping up with prices. The colleges also stand to gain if the stock market does well, and they have, to a degree, locked in student business. The risk/reward is reasonably transparent. Other 529 plans simply let you invest in bonds or stocks with a tax advantage.</p>
<p>A pure ponzi scheme only has income from new member contributions.</p>
<p>I finally decided to pull the trigger and roll over some of my son’s 529 money into an i529. Fortunately I had printed off the rollover form a couple of weeks ago because many of the forms have been removed from the website. Unfortunately I’d only printed page 1 of 2. I called the i529 support number and a very helpful representative faxed me the form. He also suggested having my current 529 company initiate the transfer to ensure that it happens in time. They’re transitioning to Oppenheimer and so that’s why some of the options are being taken off the site (early!)</p>
<p>For anyone else considering this plan prior to the change from TIAA/CREF, you probably shouldn’t wait too much longer.</p>