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Saving for kid's college... Parents? Financial Folk?
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Saving for kid's college... Parents? Financial Folk? - December 14, 2007, 10:03 AM

Ok, so the wife and I are expecting a son soon and I am starting to look at these prepaid college plans available, like trusts where you lock in todays rates, versus investment plans, maryland vs Virginia etc.

Any parents and/ or financial experts out there that can offer insights on this subject? What are your experiences?

If I started the locked-in prepaid trust deal, it would be around a $300 payment for the next 18 years (with the payments being tax deductible), which locks me in at todays rates (although the numbers dont seem to jive too well). Could it be more beneficial to invest money otherwise in another 529 plan?

Also, i'm a VA resident, but wife and I both went to Maryland state university's, so we're a bit biased towards there... Is there some way we can do Marylands prepaid plans and still get the tax deductible contributions?


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December 14, 2007, 10:08 AM

Congrats first off!!! I know this may sound wierd but if you own a house and will have equity in it use that. I have my work investment to use for it though.


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December 14, 2007, 10:18 AM

I have a son graduating this year and ANY type of savings NOW would be a GOOD thing!! Believe me!!! This ish is EXPENSIVE!!!!!!!!

Congrats to you though!


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December 14, 2007, 10:24 AM

I was a financial consultant long ago. I would advise you to check with TWO experts, a tax attorney or accountant and an investment advisor. Compare notes and share the info with each.

My only additional advice would be not to rely on your bank alone. With an 18-year horizon, "locking" in today's rates is beneficial to borrowers, not investors! Even a small reduction in the rate of return (25 basis point drop that Bernanke announced Tuesday) would have a dramatic effect on your child's college fund balance in 2024. The ONLY reason to 'lock' the rate is the possibility that you will need the money for an emergency. Moral of the story... in a child's college account, you can't touch it, so it's silly to lock the rate of return.

A mixed portfolio that conservatively approaches your tolerance for risk is something on which banks are not generally equipped to advise you. See an expert and don't be shy to stop their pitch for your questions. Congrats and good luck!


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December 14, 2007, 10:38 AM

Quote:
Originally Posted by JPVaccaro
I was a financial consultant long ago. I would advise you to check with TWO experts, a tax attorney or accountant and an investment advisor. Compare notes and share the info with each.

My only additional advice would be not to rely on your bank alone. With an 18-year horizon, "locking" in today's rates is beneficial to borrowers, not investors! Even a small reduction in the rate of return (25 basis point drop that Bernanke announced Tuesday) would have a dramatic effect on your child's college fund balance in 2024. The ONLY reason to 'lock' the rate is the possibility that you will need the money for an emergency. Moral of the story... in a child's college account, you can't touch it, so it's silly to lock the rate of return.

A mixed portfolio that conservatively approaches your tolerance for risk is something on which banks are not generally equipped to advise you. See an expert and don't be shy to stop their pitch for your questions. Congrats and good luck!
I agree. banks suck. try dealin with invetment companys. I have had good dealings with ING, and Fidelity. There are tons more out there. They will better advise you on how to get the ammount you need by the time your ready for it.

Congrats on the baby rider.. and good luck on your search.


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December 14, 2007, 10:42 AM

Thanks for the info (and congrats) so far, but as a clarification, when i say lock in on rates, I mean lock in at todays college prices, which go up quite a bit each year..

but the numbers dont jive for that, b/c todays rates for 4 years is just over 30k, but the monthly payments add up to over 60k ... Hence my questions here... I should have some equity in a house by then, but i'd rather not leave it to just that especially with the market as it has been.


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December 14, 2007, 10:43 AM

Quote:
Originally Posted by dodge131
Congrats first off!!! I know this may sound wierd but if you own a house and will have equity in it use that. I have my work investment to use for it though.
NOT BLASTING- so please don't take it that way...but why would it be a good idea to borrow against your house instead of putting money AWAY for the college fund?


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December 14, 2007, 10:50 AM

oh, Well first off college for 4 years is not 30K. cost more than that. And your right, 300 for 18 y is 64800. If you ca afford to invest that kind of money constantly for the next 18 years. You would be alot better off no matter what the college price are. I also assume that if you lock in this years tuition price you would also have to pick a school now. What if they don't offer what your child wants a degree in? Is the money wasted? or what if your finances change and you can no longer afford to put in the 300 a month. do they give you your money back with interest or are you just assed out?

I would still say a good investment of the next 18 years would be a better option.


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December 14, 2007, 10:52 AM

Quote:
Originally Posted by Madman
oh, Well first off college for 4 years is not 30K. cost more than that. And your right, 300 for 18 y is 64800. If you ca afford to invest that kind of money constantly for the next 18 years. You would be alot better off no matter what the college price are. I also assume that if you lock in this years tuition price you would also have to pick a school now. What if they don't offer what your child wants a degree in? Is the money wasted? or what if your finances change and you can no longer afford to put in the 300 a month. do they give you your money back with interest or are you just assed out?

I would still say a good investment of the next 18 years would be a better option.
GREAT point.


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December 14, 2007, 10:57 AM

Quote:
Originally Posted by LadyK
NOT BLASTING- so please don't take it that way...but why would it be a good idea to borrow against your house instead of putting money AWAY for the college fund?
Naw just a thought. Some times you can not save enough money enough for what ever reason. Plus maybe you can afford a house but not to save for thier edukation. If you could pick one I would pick the house. Not saying its the best way but it is a way. Either that or you better make sure that kid can get a scholarship.


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December 14, 2007, 11:03 AM

ha! i wouldnt know about that stuff... mom and dad wanted me to go into the military

but between scholarships and all... i only went into 15k debt to get 5 years of schooling... then again i worked full time and went to school full time... worked summer, spring break, etc.


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December 14, 2007, 11:08 AM

$300 tax-deductible contribution per month for 18 years... with a 4.5% fixed return (CD's in a 529 account), you'll end-up with about $100k when your child goes to school. At 10%, it's $180k. Using a 4% annual inflation figure, it's safe to say college cost will double in 18 years (rule of 72).

See a professional for good advice, and a credible plan with a projection that won't cause you to lose sleep at night.


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December 14, 2007, 11:41 AM

One thing I was always told is to make sure you put the investment in your name and not the child's.

Also, Susan Brown @ www.washeq.com has great advice. I used to work there as their Operations Manager... but she is a VERY honest financial planner. You can tell her I sent you and she will take you out to lunch to chat. Just for one opinion... but definitely check a few different places.
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December 14, 2007, 11:43 AM

What I know about these plans could fill a thimble, but I just went to the Virginia website and if I am reading it correctly, I can't imagine choosing the prepaid tuition plan. While I recognize that college costs tend to go up quite fast, the odds that my child is going to go to a Vigrinia public university and live in VA at the time he/she applies are quite slim. It seems that if they go to any other school, the plan will play the lesser of: the reasonable rate of return on my contributions to the plan or the cost of instate tuition at a VA public university. The disclosure itself says that such payment is likely to be less than the average public tuition and expenses.

I hate restrictions, especially when it comes to how I invest my money. It seems to me that with the standard 529 plan (college saving plan not prepaid tuition plan) you can choose how your money is invested and use it as you see fit.

But again, I've spent all of 10 minutes reading through the materials on the VA website, so I may be missing something.

http://www.virginia529.com/index.asp
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December 14, 2007, 01:05 PM

look into IUL or VUL, it's protected with life insurance...(then again, it is life insurance) but you get gauranteed rates despite the market and it does have a cap. You can pull out money tax deferred...if something happens to you, your kid is taken cared of - either way.


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