Do you have the college mindset?
Beloit College has once again issued its annual “Mindset List,” this time for the class of 2014.
While much of the press uses this list as a way to emphasize new college students’ youth and inexperience, Beloit describes it as a look at the “touchstones” that may color collegians’ thinking now and in the future.
For example, for the Class of 2014, cable TV has always offered hundreds of channels, e-mail has always been too slow, and wristwatches are unnecessary jewelry.
This is truly an electronically integrated, globally oriented class. As far as they are concerned, American companies have always done business in Vietnam, China has always been an economic competitor, and Russians and Americans have always been living together in space. This comfort with the world came with a price tag. Education, cable, travel, camp, computers, PDAs, and data plans are not inexpensive.
I remember thinking about starting a 529 plan in 1998, when they were just gaining momentum and my daughter was halfway through high school. I decided there wasn’t enough time for me to accumulate enough earnings to make a real difference, especially with the income-tax reductions that also occurred. The provisions of the law improved for taxpayers over time, and although my daughter is now managing most of the expense herself, I’d like to be able to revisit that 1998 decision—especially now that I’m looking at helping her with graduate school expenses. With 12 years of hindsight, I now know I did have time.
Many of you have been saving for years, building an education fund to help support that final push through the expensive college and perhaps postgrad years. The average in-state tuition and fees for full-time undergraduate students for 2008–09, before student financial aid was deducted, was $2,601 for a public two-year college and $12,075 for a public four-year university. Private four-year schools averaged $31,969.
We’ve seen total assets invested in 529 plans climb to $104.9 billion in 2008, as many families are using prepaid tuition or college savings plans. So, I’d like to know: Did you take advantage of the 529 vehicle when it became available, or are you taking a different approach to paying for college?
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I believe in pay as you go for my grandchildren. In the secular bear market, each year the indexes fall further behind the year 2000. Buying dividend growth stocks and waiting until the bill comes works better than 529 plans!
I opened 529s for grandchildren starting about nine years ago. I recall telling my children that the relatively modest monthly amount I was contributing should end up summing to about $30,000/ child by age 18 (and this was not something that I had made up out of the air). Well, it doesn’t appear that anything like that is going to happen but there is still some time, hopefully, for me to be wrong.
First item (playing catch up): Something that may or may not have been considered throughout this blog series: The current gift-tax exclusion is $13,000, plus there is a provision seemingly unique to 529 plans that allows an individual to do a five-year election and ultimately make a one-time contribution of up to $65,000 (up to $13,000 x 5) in one year. I know these dollar figures are rather high especially considering how many families are struggling, however the dollar figures listed are simply the given range that is available. In addition, one or more family members could easily factor a subset of the respective dollar figures via an extended family’s particular scenarios. Second item (close family ties): An originally married couple or the given individuals now remarried (e.g., range 2x to 4x U.S. citizens), could each contribute up to $13,000 level and this would range up to $52,000 without considering the five-year election per each individual. Disclaimer – this is an ordinary conversion via a blog; this is not certified financial advice.
Our son was born in March of this year and as soon as we received back his SSN, I filled out the paperwork and sent in his 529 plan application. I am a)glad that it is managed by Vanguard and b)for the in state tax deduction. So yes, I have the college mindset.
We have a 9-year-old son. So far, we have been unable to afford to save for his education. When he graduates from high school, hopefully our earnings at the time, plus his earnings, plus loans and scholarships, will suffice to get him a decent education for his chosen field.
I think it’s important for people to have plenty of emergency savings and retirement savings before it makes sense to put much into education savings. At least an education can be primarily funded by borrowing if necessary (along with the student’s own earnings), whereas that doesn’t work so well for the parents’ emergencies or for their retirement.
In recent years, I have suggested to people who want to do education savings that they start with a Coverdell ESA (Education Savings Account), then also fund a 529 plan if they can afford to do so. However, unless Congress acts, the Coverdell ESA’s are going to become a lot less attractive after December 31, 2010. For those who already have a Coverdell ESA, at some point it might be a good idea to roll over that money into a 529 plan.
I think you are giving us the company line and not what you really believe about equity growth since 1998.
Saving for college is a good idea, but doubling your money every 7 years is one of the three great lies.
End the federal subsidy to higher education. Anyone familiar with the history of higher education knows that the government ruins it. Hippocrates, the Father of Medicine, ran a for-profit medical school. Aristotle and Plato ran for-profit schools of philosphy as did other Greek philosophers who are better than any the American nation has produced.
I disagree with the first comment. Yes, the major indices went down in 2001, 2002, and 2008, but they went up in 2003, 2004, 2005, 2006, 2007, and 2009; and, 2010 could go either way, so at the end of the year we will have a total of 6 or 7 positive years out of 10. Also, at the end of both 2006 and 2007, the S&P 500 was higher than it was at the end of 2000. All in all, not a great era right now, but a far cry from going down every year.
It can work. My father started College savings plan for each of his grandchildren back in the mid 1970′s using UGTMA (today’s 529 plans are much better) Each account started with $10,000 and thanks to a great bull market it earned more than 12% compounded each year. This means that the $10K doubles every 6 years– this means that in 18 years when they started college the $10K would double 3 times. That is, #10K to $20K to $40K to $80. This was enough to pay for 4 years at Notre Dame for all three of my kids ( the last graduated in 2000.)
So just as 1973 was a dismal time for the US economy and yet it worked great over the follwoing 20 years. So I hope and pray that the next 20 years will be just as generous to the 529 accounts that I have started for my four grandchildren.
Let’s hope that sometimes history does repeat itself.
P.S. my father started saving for my college education in 1949, right when the US was coming out of WWII and had not quite fully recovered from the great depression, Again the 20 years of the 1950-1969 were again very generous times for the stock market.
So yes, current times are bad, but this is NOT THE FIRST GENERATION TO HAVE EXPERIENCED A SIMILAR SITUATION
I have three grandchildren and a 529 for each of them. One was born in 2007, another in 2008, and one in 2009. The differences in returns for those three “target” funds is amazing, but I’m betting that 15 to 18 years from now, there will have been appreciation such that I’ll look at buying “low” in these initial years. If not, we’ll help when we can.
I started a 529 for myself years ago.
Just add money every year.
I like tax-deferred accounts.
Plus deduction on state income tax.
Yeah man!
I will never use the 529 for myself.
Had enough college years ago.
Someday someone else will be able to use it.
Maybe grandkids.
Or maybe give it away to a starving student.
From somewhere I can’t pronounce.
Calcutta, Mumbai
or maybe some guy
from a deserted hilltop in Spain
or an original
aboriginal brother of mine
roaming the Nullabor Plain
Hmmm… getting the tax break while getting decent returns, or seeking higher returns elsewhere and not getting a tax break. Well, I believe it’s better to diverse (versus the ‘all your eggs in one basket’ idea).
I had 529 accounts set up thru a previous employer for both of my children. We went through some lean times and my husband convinced me to request hardship close-outs of the accounts. He also was of the mindset of we can always take out loans for education vs. dipping into our retirement savings. Both of my children seem to want to learn life’s lessons the hard way. Neither one finished their educations despite our financial support. If we had been using the 529 money, would it be forfeited if they didn’t continue college? I don’t recall the rules any more.
We started a 529 account about 10 years ago when my son was 8. We started small with $25 a month. I’ve increased the contribution a little every year. While there have been some years with pretty low interest rates, we have still managed to save a decent nest egg. At the time, it hardly seemed worth starting the account with so little money but I’m so glad we are now in a position to reward him for his hard work. If you have kids, just take the leap … no amount is too small to start. Graduation comes faster than you think!!
A family that saves a bundle for a child’s college expenses gets punished on the financial aid from colleges and universities. From experience, I now know that the money should not be held in a 529 or in the child’s name. Create a trust for maximum flexibility. If you are thinking about college for an infant, look now at the FAFSA application at http://www.fafsa.ed.gov . The best investment in children is to spend time with them and encourage academic performance. The academic scholarships are truly the most economical. A scholarship for academics trumps a part time job through high school. Get your child hooked on learning and prepare them well with proper study skills. Save and invest, but don’t make it an asset in the child’s name.
I have financed my two girl’s educations through a combinatio of taxable Vanguard acounts and 529 accounts. I would have come out somewhat better tax-wise if the 529 plans were available when they were younger, but the taxes on the vanguard accounts have been spread out over many years so they didn’t hurt as bad. Bottom line is that through saving early and continuing through high school I’ll get both of them through school with no loans. This should be a great help to them in the future. An important point to consider is to reduce your risk as the kids get closer to school age. My older one was in college and my younger one was a senior in high school when the market crashed in 2008. I had quite a bit in cash at that point but still did not sleep very well!
I think its interesting to see how this is dealt with in the USA. I have been doing some research to compare the provision to that in the UK. The government are about to release the Junior ISA in November 2011. It will replace the old child trust fund. The main difference is that you no-longer get the free £250 to open the account and the tax limits are higher.