February 12, 2011,
J.A. asks from Moab, UT on February 11, 2011
Saving for Your Toddler's College Fund! 529, Gerber Life, Etc???
Any suggestions on what you and your family are doing?
While my parent's paid for about 60% of my college career, they hardly saved at all and left both myself and them in debt. My husband's family was the same way. While I am extrememly grateful for what they were able to do, I don't want my kids or myself to be in the same situation (paying on student loans until I am 60!!!)
I know the market is rough so a 529 isn't always the best idea. I have heard some things about the Gerber Life College Plan, but don't know much. We can't put very much in there monthly, but wanted to get started.
Our financial planner wants to us max out our retirement savings first, but at the rate we are currently going, that may not happen for years and what is another $50 or $100 in a retirement account when we could at least have something started for the kids...
We have one 21 month old and and one on the way!
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K.G. answers from Minneapolis on February 11, 2011
I have three children, and none of them will have any funds to get them to college. At least from us.
My husband and I are planning and saving for retirement. When colleges and universities look at the "family portion" of what they can expect for tuition, they do not look at retirement accounts. The DO look at the college savings accounts, and therefore reduce the amount of scholarships and grants that your child would be eligible for.
We do not want to be a burden on our children, so we are planning to take care of our retirement first. Also, when you can put something away now, with the miracles of compound interest, that can increase dramatically by the time you retire.
Because I love my children deeply, I do not want to be a financial drain on them when I am older. I would much rather have them go into debt getting an education, which will be a finite debt, than having to care for my husband and me, which could drag on for years, and years, and years.
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J.S. answers from Boston on February 11, 2011
Honestly your financial planner is right. There are many ways to finance a college education. You can't borrow your own retirement. While "maxing out" your retirement plan may be an unrealistic goal for now, are you somewhat on-track given your current balances, ongoing contributions and years to retirement? I'm nowhere near maxed out on contributions, but I know that even with lower contributions than I would like going into my plan, I am on track so I do contribute to college savings funds. I know that you were asking the "what is another $50 or $100 in a retirement account" hypothetically, but actually...it's A LOT of money depending on your years to retirement, ROR, etc. Your financial planner (or any on-line tool) should be able to tell you what that translates to in 16 years, 18 years, and then however many years you have before you retire. You should get that answer before you make a decision.
I don't know much about the Gerber Life College Plan. I know from my brief stint selling life insurance that the "Gerber Grow Up" plan is a useless waste of money so I would probably lump that into the same bucket if what they're really doing is using life insurance as a college investment vehicle.
I would go with a 529 plan - yes there is always market risk, but you can invest in portfolios indexed to your children's college start date that get more conservative over time. There are tax advantages on your money's growth (and some states offer tax breaks on contributions), they are flexible, you control the account (not your children), etc.
ETA I was curious about the Gerber plan and yes, it's cash value insurance being sold as a college investment. Given the hypothetical on their website, the rate of return is about 3.5% annually. Even a lousy stock market can beat that! Insurance products masquerading as investments are very, very, very rarely a good idea.
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J.B. answers from St. Louis on February 12, 2011
I remember my mom complaining that she saved thousands of dollars for my college, but it ended up reducing my grants and scholarships because the FAFSA and college thought we could pay more out of pocket due to the savings. It can backfire in the end.
We have a savings account for each of our children, and we transfer $10 a week to each account. When they turn 18, they get the account. It should be over $9000 ($520/year). If they choose to go to college, they can use it for tuition or books. They may choose to buy a car, rent an apartment, whatever. This is our gift to them to use for their futures. (On a side note, we put their social security numbers on the accounts also and this begins to build their credit before they even know what that means. When they turn 18, they will have a credit score that shows they have had an account in good standing for 18 years.)
D.M. answers from Denver on February 11, 2011
We have two 529s for our kids (3 and 4 now) that we started when they were 1. You can use it for any further education including private colleges (so I'm not sure what the other post was referring to). We also save for retirement but don't max it out. Bottom line is you can control or predict the future so we do both - as much as we can. The grandparents also contribute - one to the 529, one to another account. Good luck.
K.B. answers from Milwaukee on February 11, 2011
We have a 529 for our daughter. We live in Wisconsin but we are using the Utah 529 plan because at the time we started it (about 2 years ago) it was the best plan of the states. We are planning on this only being for college. I believe to start it we had to put in $1000, we are not required to put anything in afterwards, but between grandparents and us we are putting about $500 a year into the 529.
We did look into Gerber but found that it was wiser to start a 529 and put in money when able.
T.K. answers from Dallas on February 11, 2011
In Texas we have a Texas Tomorrow Fund. It lets you lock in college hours at todays rates and prepay for them. It's not a financial investment, you don't earn interest or anything, so, you don't have to pay taxes on the gains. My husband started when my daughter was 5 and she's 18 now, so, her 1st 2 years are paid for and she gets the rates she would've paid 13 years ago! That and her Pell grant and it should be very little out of pocket, if anything to finsih her degree. Check to see if you have a similar program in your state. Other than that, you can buy annutiies or even a life insurance policy that gurantees a large cash value when your kids reach 18. You have to put a lot in to get a lot out though.
K.P. answers from New York on February 11, 2011
We have started a 529 for our son and also are doing a savings account through our bank (in case we decide on private school). Our planner also recommended maxing out our retirement b/c you can always "borrow" for college, but you can't "borrow" for retirement.
My parents also starting a sheltered account for their grandchildren. They put money in the account at each holiday and "occassion" (and also a little gift to open). My grandparents did this for us and "little here and there" added up to paying for all of our graduate school programs, which was wonderful!
Our 529 has done really well (knock on wood, fingers crossed, everything crossed)- in fact better than our retirement funds!
J.G. answers from St. Louis on February 12, 2011
Missouri's MOST plan is one of the top five best plans in the US. Not sure why you would look anywhere else.
Oh Lola, we thought the same thing about private schools. The good news is the scholarships were better than the tuition we spent on private schools. The bad news is universities are three and four times more expensive than private high school. :( We still have to pay around $25,000 a year and she graduated with a 3.9 from one of the top girls high schools here in St Louis. Now she would have had a free ride had she not quit soccer her junior year. Kinda gives you an idea that priorities are a little out of whack but it is what it is.