I love balancing the 529 with the taxable brokerage account designated for college (or not college!). I tend to stick to targeting 2 years of public in-state cost in the 529 and the rest in a brokerage. I wish a had a crystal ball to perfectly predict what should I put in there. In case you haven't come across it I also really like this calculator: https://vanguardcollege.ssnc.cloud/csp.php
My wife and I both had private college paid for by our parents and would like to do the same for our three kids. Our plan is to have public in-state college paid for by funds in a 529, and the incremental cost of private college covered by taxable accounts so we don't strand money in a 529. The tax-free growth in a 529 is pretty compelling (the tax savings are one of the few ways to reliably "beat the [taxable] market")
Saving for college is challenging because college costs are rising almost as fast as the market, so time-in-market doesn't help you as much as it does for retirement. We work with our financial planner to model costs and we are on track- we have been saving $15000 per kid per year from birth, and this will be barely enough to cover private college. We're fortunate to be able to save this much but it seems absurd that this is what college will cost.
It would be awesome to hear how you are approaching money and kids- we have similar aged kids and are working on how to balance helping them understand the value money without artificially limiting ourselves too much either.
I generally agree @Andre (my son is 17 so this is very real right now) but one question, would you change your approach if the state you lived in provided tax discounts for contributions?
For example, NY (where I live) provides a state tax discount for up to $10K/year in contributions, so I have done annual funding versus the fully up-front approach.
I have one in college now and one two years off. Covering public instate for both but there’s an open question on private or out of state for the younger one. I always said I wouldn’t cover private but I am struggling with the decision.
I would love to read more writing from you on kids and FIRE Andre. Hitting FIRE when single feels far easier than when you’re responsible for others. I loved Morgan Housel’s chapter on “Your Money and Your Kids” and the two pages just before that chapter in The Art of Spending Money, and I’d love to hear your take on it, including the challenge of how children feel the need to build a better life than their parents, which can be hard if your parents are very successful financially.
We’re in a similar spot; my daughter is 8, I have no idea what college will look like and thus I’m trying to prep for multiple outcomes.
529 is at about 85, taxable custodial brokerage is higher.
(My plan is in her teens start teaching her some of fundamentals of investing so that when turns 18 and gets the brokerage, she at least knows what she has and the ups/downs of different things she can do. I also want to add a Roth and/or Trump account later this year)
I'm in a similar position -- and although I don't want to significantly overfund a 529, I understand that $35k can be converted to Roth IRA over my child's lifetime (subject to annual limits)
Good discussion of the options. I think you jumped in to quick though.
What is your goal as a parent, for your daughter? Assuming she attends a 4 year school and is independent at 22, what are the money lessons you want here to learn by then? Once you answer those, then ask yourself if your college savings approach accomplishes that.
This continues to be an active conversation for my wife and I. I'll share my answers, without making any judgment about yours or others.
***I don't want to give my kids a full ride***. I believe that will lead them to take for granted what is probably the second largest purchase of their lifetime. I believe kids who have a stake in their education get more out of it and make better financial decisions about their education. I'm not convinced that being told "go to any school your heart desires and we'll write all the check" at 16 lead to the best long-term life outcomes.
My parents paid for a good chunk of my school. I also had some grants, contributed yearly from part-time and summer jobs, and graduated with $20k in loans (2000). That helped me learn the value of money, value my parents contribution, value my education, and establish credit.
I really feel like I lucked into a sweet spot, I'm not sure my parents were super intentional about the outcome. $20k is manageable - I maintained my college student standard of living and paid off the loan in 18 months. I hear about kids graduating with over $100k in loans and I feel for them - that amount of debt in anything but the most lucrative careers will feel back breaking. IMO obviously you want to avoid that if you can.
To bring it back home, I'd encourage asking yourself if covering 100% of college is the goal. What lessons does that teach, what outcomes does that reach? Make sure you've got the right goal before you build all the models and optimize the strategy.
I think this hits hard on the "I turned out fine, so I should copy what I went through" mentality. It isn't necessarily right or wrong.
I do empathize with the "skin in the game" mentality.
The reality of my situation is that because of my financial success my daughter would be much less likely to qualify for many need based aid programs that I benefited from. I am fine giving my kid a full ride for an in-state public university, and that is what I am planning on.
My thoughts are very likely to evolve overtime. Which is also reflected in my approach to target 50% of a 4-year public school in a 529. There is space there to evolve the approach.
Fair, but I've been pretty self-reflecitive about it. There's definitely other parts of my upbringing and financial journey where I want my kids to have a different experience or lesson than I had, I feel I've been pretty self-reflective about it (and yes, everyone says that).
100% agree that aiming to have 50% in 529 and the balance in an (earmarked) brokerage gives you flexibility. You're not committed to it. Flexibility is key!
I think that's especially true precisely right now. The elephant in the conversation is that nobody knows what higher education will look like in 10 years. There's a potential reckoning coming for Higher Ed, and it's name is AI. It's possible that nothing changes, or value of a degree becomes primarily about status and colleges become a place where rich kids network and slowly ease into adult life, or universities embrace change and hold themselves accountable for adopting AI to deliver more educational value for less cost. I'd love if option C came to pass, but I'm not betting on any of it.
Overall, I'd still say it's important to frame on the outcome you want to achieve 20 years from now for your children. That will make sure you're taking the right actions now to put the right options on the table 10 years from now, and that you're also choosing the best of those options.
+1 on more FIRE with kids posts. My daughter is half the age of yours, so you are my sensei and I your grasshopper :)
I love balancing the 529 with the taxable brokerage account designated for college (or not college!). I tend to stick to targeting 2 years of public in-state cost in the 529 and the rest in a brokerage. I wish a had a crystal ball to perfectly predict what should I put in there. In case you haven't come across it I also really like this calculator: https://vanguardcollege.ssnc.cloud/csp.php
My wife and I both had private college paid for by our parents and would like to do the same for our three kids. Our plan is to have public in-state college paid for by funds in a 529, and the incremental cost of private college covered by taxable accounts so we don't strand money in a 529. The tax-free growth in a 529 is pretty compelling (the tax savings are one of the few ways to reliably "beat the [taxable] market")
Saving for college is challenging because college costs are rising almost as fast as the market, so time-in-market doesn't help you as much as it does for retirement. We work with our financial planner to model costs and we are on track- we have been saving $15000 per kid per year from birth, and this will be barely enough to cover private college. We're fortunate to be able to save this much but it seems absurd that this is what college will cost.
It would be awesome to hear how you are approaching money and kids- we have similar aged kids and are working on how to balance helping them understand the value money without artificially limiting ourselves too much either.
I generally agree @Andre (my son is 17 so this is very real right now) but one question, would you change your approach if the state you lived in provided tax discounts for contributions?
For example, NY (where I live) provides a state tax discount for up to $10K/year in contributions, so I have done annual funding versus the fully up-front approach.
Yea, being able to reduce your state taxable income by $10k per year would change the calculus.
I’d likely do what you are currently doing all the way until they graduated!
I have one in college now and one two years off. Covering public instate for both but there’s an open question on private or out of state for the younger one. I always said I wouldn’t cover private but I am struggling with the decision.
I would love to read more writing from you on kids and FIRE Andre. Hitting FIRE when single feels far easier than when you’re responsible for others. I loved Morgan Housel’s chapter on “Your Money and Your Kids” and the two pages just before that chapter in The Art of Spending Money, and I’d love to hear your take on it, including the challenge of how children feel the need to build a better life than their parents, which can be hard if your parents are very successful financially.
We’re in a similar spot; my daughter is 8, I have no idea what college will look like and thus I’m trying to prep for multiple outcomes.
529 is at about 85, taxable custodial brokerage is higher.
(My plan is in her teens start teaching her some of fundamentals of investing so that when turns 18 and gets the brokerage, she at least knows what she has and the ups/downs of different things she can do. I also want to add a Roth and/or Trump account later this year)
I'm in a similar position -- and although I don't want to significantly overfund a 529, I understand that $35k can be converted to Roth IRA over my child's lifetime (subject to annual limits)
Yeah, the Roth piece never felt super compelling to me. That has made me very reluctant to get to the point of potentially overfunding the 529.
My child's 529 is also in "coast" status as I don't plan to contribute anything more beyond what we've already funded and we won't need it until 2031
Good discussion of the options. I think you jumped in to quick though.
What is your goal as a parent, for your daughter? Assuming she attends a 4 year school and is independent at 22, what are the money lessons you want here to learn by then? Once you answer those, then ask yourself if your college savings approach accomplishes that.
This continues to be an active conversation for my wife and I. I'll share my answers, without making any judgment about yours or others.
***I don't want to give my kids a full ride***. I believe that will lead them to take for granted what is probably the second largest purchase of their lifetime. I believe kids who have a stake in their education get more out of it and make better financial decisions about their education. I'm not convinced that being told "go to any school your heart desires and we'll write all the check" at 16 lead to the best long-term life outcomes.
My parents paid for a good chunk of my school. I also had some grants, contributed yearly from part-time and summer jobs, and graduated with $20k in loans (2000). That helped me learn the value of money, value my parents contribution, value my education, and establish credit.
I really feel like I lucked into a sweet spot, I'm not sure my parents were super intentional about the outcome. $20k is manageable - I maintained my college student standard of living and paid off the loan in 18 months. I hear about kids graduating with over $100k in loans and I feel for them - that amount of debt in anything but the most lucrative careers will feel back breaking. IMO obviously you want to avoid that if you can.
To bring it back home, I'd encourage asking yourself if covering 100% of college is the goal. What lessons does that teach, what outcomes does that reach? Make sure you've got the right goal before you build all the models and optimize the strategy.
I think this hits hard on the "I turned out fine, so I should copy what I went through" mentality. It isn't necessarily right or wrong.
I do empathize with the "skin in the game" mentality.
The reality of my situation is that because of my financial success my daughter would be much less likely to qualify for many need based aid programs that I benefited from. I am fine giving my kid a full ride for an in-state public university, and that is what I am planning on.
My thoughts are very likely to evolve overtime. Which is also reflected in my approach to target 50% of a 4-year public school in a 529. There is space there to evolve the approach.
Fair, but I've been pretty self-reflecitive about it. There's definitely other parts of my upbringing and financial journey where I want my kids to have a different experience or lesson than I had, I feel I've been pretty self-reflective about it (and yes, everyone says that).
100% agree that aiming to have 50% in 529 and the balance in an (earmarked) brokerage gives you flexibility. You're not committed to it. Flexibility is key!
I think that's especially true precisely right now. The elephant in the conversation is that nobody knows what higher education will look like in 10 years. There's a potential reckoning coming for Higher Ed, and it's name is AI. It's possible that nothing changes, or value of a degree becomes primarily about status and colleges become a place where rich kids network and slowly ease into adult life, or universities embrace change and hold themselves accountable for adopting AI to deliver more educational value for less cost. I'd love if option C came to pass, but I'm not betting on any of it.
Overall, I'd still say it's important to frame on the outcome you want to achieve 20 years from now for your children. That will make sure you're taking the right actions now to put the right options on the table 10 years from now, and that you're also choosing the best of those options.
Spot on - when facing uncertainty, optionality is key!