Answers and Comments
I suggest disciplined and consistent (monthly or quarterly) contributions to 529 plans. Most of our clients make contributions directly from their paychecks. Depending on any projected shortfall, your amount added may need to increase as your child gets closer to starting college. Happy to discuss further.
In most situations for our clients, a 529 plan makes the most sense for college savings. There are some other options available as well, but most of our clients use 529 plans to save for college. Hope that helps...you're welcome!
Agree with the responses so far. With the new Cares Act, a 529 is even more attractive.
The only thing I suggest is to make the contributions perpetualy. Thus it is easier to know this is being done automatically instead of putting a lump sum annually.
I am not a fan of 529's for a variety of reasons. However, I'm going to follow this conversation and see if learn some things that may change my mind. That said, I have a very out-of-the box way I help my clients to fund their childrens' college education. I have them purchase income property.
Over the years, the tenant's rent pays down the mortgage and in most circumstances the home will appreciate in value as well. When the money is needed to pay for college expenes in 10-15 years, it will provide a substantial amount of equity that can be accessed income tax-free via refinancing.
Even if little Johnny or Jane don't turn-out to be college material, or they attain every parents dream of a fully-paid scholarship, a good rental is still a good investment and there are many tax benefits associated with owning rental properties as well .
I also would recommend a 529 plan. Make your contributions automatic from your paycheck. I also would consider a junior college for the first two years. Then transfer to a 4 year University. If one parent is a citizen or Canada, France, Great Britain, any other more civilized nation, look to going to college there. I have a friend who earned a BS and MS in engineering in France. They paid him to go to school. His MBA was $45K/yr.
But rest assured, you probably will never save enough. Do the best you can.
As with all things in life, there are advantages and drawbacks with different college saving options. For ease of use, flexibility, investment options, and liquidity, in our opinion a 529 plan offers the best solution. However, when appropriate, a Coverdell ESA, an UTMA and/or a brokerage account may make sense.
I agree with 529s. I have them for a couple of my grandkids. I also have used variable life insurance for grandkids as a funding vehicle. Not as great an investment vehicle as the 529, but the assets are non-countable in the financial aid formula, withdrawals are tax free, and the child has guaranteed life insurance for the rest of their lives. This only works on the youngest children though. The extra costs of the life insurance slows the cash buildup vs the 529.
For the wealthy client, indexed universal life insurance can be a great tool for college, but the policy must be designed correctly. Don't buy from an insurance agent, many of them don't have the same training as financial planners, plus they don't have to act as fiduciaries like financial planners do.
For most clients, the 529 is the best choice. Disciplined monthly automatic contributions allow you to take advantage of dollar cost averaging. Every state has its own plan, but you don't have to use the plan for the state in which you live. Compare the growth potential of the better plans against the tax benefits (if any) that your state offers, and determine which plan provides the best overall benefit.
When using a 529 the "devil is in the details". It is not a Fedral Income Tax deduction. Only a State income Tax deduction. Each State has its own annual maxium. It must be applied to specific college expenses (junior does not get a new car). The 529 is an excellent method to build a college fund over time. If you have 15 or 20 years, I would suggest an Universal Index Life Policy. This type of policy has several advantages and uses for a parent. PLEASE remember to talk to a QUALIFIED adviser and not someone that has auto insurance, cancer coverage and aluminum siding.
Very Funny Thread !. As a father a son and a professional advsor I laugh when I hear people say tell your kids to go to a junior college or community college or better yet a foriegn college to save money.
In my 45 years of running a practice we have put hundreds of kids through top schools .There is no greater feeling ,than when your daughter comes up to you at Thanksgiving dinner and says Dad I got into Carnegie Mellon - and you say terrific you are going. And you will graduate debt free.This was my experiecne with 2 children and many of our clients as well. If you cant do it , you cant .But with long term planning you can.
Yes I did some 529, yes I did some real estate investing , in trust for the kids , yes I bought millions of dollasr of whole life .Saving too much will never be the problem.
Simple questions don't always have simple answers. Are you asking for your child, granschild or some elses child? How important is losing control of the money? How much is available in the bigger financial picture?
Yes 529 plans have advantages, but are not the only answer. We recommend looking at this in the context of your total financial plan. The devil is always in the details