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Trying to be more responsible
Old 12-01-2015, 07:53 PM   #1
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Trying to be more responsible

Stumbled across this forum when I was searching for investment options for retirement and found it to be a great resource especially the awesome FireCalc

A little bit about myself.. I am 39 years old working fulltime for around 15 years, never really thought about investing or retirement until couple of years back when my son was born. After running through the numbers using FireCalc without social security(who knows if its still gonna be there) I need around $2000000 to retire. I lived my life kind of irresponsibly with expensive hobbies like flying etc and ended up not saving much. I am looking at making amends to my behavior and hopefully hang up my boots in another 15-20 years

Family – Myself(39 years, $130K), Wife(36, not working) and one son(2 year old)
Location – Portland, OR
Investments so for
401k - $300K(company offers 5% match and I plan to contribute max allowed each year going forward)
House - $310K, loan remaining $80000. Need to move to another house in better schooling district in 3 years
529 – $10000, Have another $200K saved for 529 but haven’t invested yet. I invest $5000 every year to get OR state tax break.

Questions I have are following
1. Which state offers the best 529 options, I am looking at state that offers good investment options like vanguard etc. OR 529 is pretty limited
2. Does it make sense to invest $200K in another state and invest $5000 every year in OR plan to get the tax break. We are planning for another kid so I expect educational expenses for both the kids to be around $600K+
3. Does it make sense to sell the house and use that equity to buy another house or keep this house as is and buy another one or something in between
4. Considering 15 years horizon for retirement what do you think is a good ratio for investments(stocks, bonds, international equity etc)
5. With all this, is it even possible for me to retire in 20 years?
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Old 12-01-2015, 08:34 PM   #2
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You have $200K sitting somewhere not invested (cash?) and are planning to invest it $5000 at a time in a 529? That would take 40 years and your son will be closing in on his own retirement. Why not invest it all now in something you are comfortable with and move $5000 per year from that investment to the 529?
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Old 12-01-2015, 09:14 PM   #3
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Putting so much of your assets into a 529 is not prudent. As I figure it your net worth is about $640k and you want to put $210k (1/3) in a 529?

Focus on saving for yourself. You can always later pay for college with cash flow or taxable account money.

I figure that your 401k will grow to $2.5 million or so in 20 years.. but that will only be worth $1.7 million in today's $ and at a 3.5% WR only provide you about $60k a year in today's $ and I'm guessing that you need more than that to live.

Invest the $200k (I assume this is in a taxable account) in a tax-managed stock index fund .... you'll still pay taxes on the income but at preferential rates. Go ahead and put $5k/year/child in a 529 if you really want to... but I wouldn't... the restrictions outweigh the tax benefits IMO.

Finally and most importantly, get Quicken and put your plan together in Quicken Lifetime Planner and then continue to use Quicken to monitor your progress.
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Old 12-01-2015, 11:14 PM   #4
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yes utrecht i have 200k in liquid assets which i was planning on putting into 529 for tax free growth with the assumption that the kids are going to need it(its my personal goal to pay for all tuition expenses for whatever they want to study)200K + 5k*(~15 years) + interest should take care of majority of tuition expenses.

Good points pb4uski.. i was thinking my 401k growth + home value + whatever else i save should get me to the 2 million number, i may be wrong ..will try the quicken thing. Also, my wife may start working if the numbers don't add up which may help
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Old 12-02-2015, 09:19 AM   #5
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yes utrecht i have 200k in liquid assets which i was planning on putting into 529 for tax free growth with the assumption that the kids are going to need it(its my personal goal to pay for all tuition expenses for whatever they want to study)200K + 5k*(~15 years) + interest should take care of majority of tuition expenses.

Good points pb4uski.. i was thinking my 401k growth + home value + whatever else i save should get me to the 2 million number, i may be wrong ..will try the quicken thing. Also, my wife may start working if the numbers don't add up which may help
But you see that its impossible at $5000 per year, right?
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Old 12-02-2015, 09:46 AM   #6
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Welcome ukdman!

I'm a few years ahead of you - but still dealing with the saving for college thing... I have a freshman and a middle schooler.

The 529 is a great investment vehicle for saving for your kids college, but it's possible to overdo it, and end up with the cash locked up or having to pay tax penalties. All withdrawals need to be for qualified expenses. What if your kids go to a public school and don't want to pursue a graduate degree. What if they decide to pursue a different path than college. At their ages, it's hard to see that far into the future. You pay a penalty for money withdrawn for non-qualified expenses... I think it's a 10% penalty on the growth. I hate the idea of paying tax money you don't have to.

I am not trying to discourage you from saving for them in a 529 - just that it is only ONE place you could be stashing the money and you probably want to underestimate their expenses for the 529, and have the balance in your other accounts - including ROTH Iras.
Roth IRAs can be a better way to save, pay for higher-education costs

I can't address OR's 529 plan. As a Californian I quickly determined that there was no benefit to staying within the state's plan - no tax break... you are in a different position. (We're in Vanguard funds from the Nevada plan (I think... might be Utah.))

Our plan is to pay for public school bachelor's degrees. Budgeting between 100-120k. We contribute $6k/kid/year... so $12k/year. I worry that we're over contributing for the 529 - as one of my kids is struggling in a few classes. (Acing math and science... but hates Spanish and one of his electives.) Teenagers are challenging. I would never have predicted that I'd be having doubts as to whether my kids would go to college.

I'm sure you've read it here in other threads... the more you save, not only does it compound and grow, it also reduces the amount you spend... pretty soon you are used to spending less, have figured out a comfortable lifestyle on less, and will need less in retirement. So continue to save for retirement, college, etc... Make it a first priority.
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Old 12-02-2015, 10:35 AM   #7
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Let me preface this comment by stating that I know almost nothing about 529 plans, and my knowledge of college financing is pretty dated since two kids finished around turn of the century.

Back then it was cautioned not to place $ in the kid's names because it was ALL assumed to be fair game for tuition and expenses, as opposed to what was in parents name where a good bit was to be allocated for their future (retirement) when applying for financial aid. As it turned out we didn't get any need based financial aid anyway, but just wonder if plumping up a 529 doesn't limit FA to a degree. Of course, I'm ignoring today's trend which is that college costs don't matter since you can get all sorts of loans and go into debt forever to pay for it.

I suspect true need based FA may not be available to folks on this board who tend to accumulate assets.

Just curious if anyone preparing for college costs these days would validate or argue against this concern?
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Old 12-02-2015, 11:07 AM   #8
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Just finished paying 100% for both children's college education. (Also, one wedding paid for and one to go but that's another story...) A couple of points I strongly agree with are that you need to focus more effort on your own retirement and less on 529 plans. By the time I was paying college tuition for my children, I could do it mostly from cash flow at that time. H2O is correct that placing dollars in the kid's names is ALL assumed to be fair game for tuition and expenses, as opposed to what was in the parents name where only a percentage was fair game, when applying for financial aid. I also agree that most on this board probably won't be eligible for any need based financial aid. I remember the amount we got because zero is an easy number to remember.
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Old 12-02-2015, 11:46 AM   #9
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But you see that its impossible at $5000 per year, right?
Why do you think so. dont get me wrong i really would like to understand. I am planning to invest 200000 today and invest for around 18 years.. assuming 5 percent interest that investment itself should generate close to 500000 ..that together with investment of 5000*20=100000 without taking into interest should come to 600k.. am i missing something?
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Old 12-02-2015, 12:06 PM   #10
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I agree with all of you that 529 could be overdoing it but want to be safe rather than sorry having heard all the horror stories of kids stuck in debt years after graduation. Also my wife is of "only the paranoid survive" mentality so it kind of not an option for me.
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Old 12-02-2015, 12:42 PM   #11
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Check out SavingForCollege.com for the best information (IMO) regarding 529s. We went the 529 route as well, and it worked nicely (a bit of a headache for distributions, but it got better over time as they matured). We also were concerned with the Financial Aid issue, but the kids did not receive any need-based aid, so it was not an issue. Kids both graduated from college debt-free, which was a blessing for them as they married and bought houses and helped pay back their spouses college loans.
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Old 12-02-2015, 12:47 PM   #12
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Why do you think so. dont get me wrong i really would like to understand. I am planning to invest 200000 today and invest for around 18 years.. assuming 5 percent interest that investment itself should generate close to 500000 ..that together with investment of 5000*20=100000 without taking into interest should come to 600k.. am i missing something?
Are you planning on investing $200,000 somewhere today (which is what I suggested earlier) or are you planning on leaving the money where ever it is and investing $5000 per year which is what you said you wanted to do?

If you have $200,000 to invest but you can only invest $5000 per year, it will take you 40 years to get the money into the account. How old will your kid (s) be by then?
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Old 12-02-2015, 03:20 PM   #13
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1. A 529 plan is not considered the child's asset for determining financial aid. It is a parent asset.
2. While contributing to the OR plan will give you a state tax break, I agree that you should not overdue it, if the child changes their mind or money is left over, you may need to pay a penalty for withdrawal. A Roth IRA provides much more flexibility in saving for retirement and the principal (not earnings) can be withdrawn with no taxes or penalties and used to pay for your kid's college if needed. The Roth can be used for either/or purposes: retirement and/or education. I'd recommend max out Roth first before considering 529 plan.

I have an 11 and a 12 grader. I have about half their projected state school college funds in 529 plans (Utah to be specific with Vanguard funds). The remainder will be from other investments like savings bonds purchased in 1991-2003. If used for higher education, interest can be tax free if meet income and other limitations. However, in today's low interest environment, this is no longer a good option.
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Old 12-02-2015, 04:45 PM   #14
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Quote:
Originally Posted by ukdman View Post
Why do you think so. dont get me wrong i really would like to understand. I am planning to invest 200000 today and invest for around 18 years.. assuming 5 percent interest that investment itself should generate close to 500000 ..that together with investment of 5000*20=100000 without taking into interest should come to 600k.. am i missing something?
What you are missing is that things may not play out as you plan and you might end up with a lot of money tied up in restrictive 529s that it costs you to regain access to. If one of your kids decides college isn't for them do you want $300k tied up in a 529? That costs you $30k to get out?

Of my siblings and BILs, all of us went to college the traditional 4 year route and 2 of us went on to get our masters. Of our kids, only 5 of the 11 went the traditional route of the 4 year plan and one of them is currently in a masters program.

2 out of 11 decided not to go to college (so far). ... and the other 4 have done community college/traditional college combination and one is currently studying for her masters.
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