$75k for an 18 y/o entering college - what would you do?

[Jimbo Slice]

This will likely not cover all expenses for 4 years of tuition, books, dorm living, etc. but what would you do with $75k to get the most "mileage" out of it? All in a 529, part in a 529, or what?

Thanks.

 

[rodi]

Step one - have them attend a community college for the first two years then transfer to a state school.

Step two - have them live at home

$75k should be enough.

We're targeting $100k/kid in 529's. (We have a separate income stream than our retirement that funds the 529's. So 529's are "off budget")

Another thought - have the kid work during the summer to pay for books and spending money.

 

[Drake3287]

I had this same problem times 3! I had about the same amount of money set aside for each child when they started college. Knowing it wouldn't be enough for cover all 4 years for each kid, I simply continued to make my normal bi-weekly deposits into my "college fund account" during the years they were in college.

Between my paycheck and my wife's, we were putting $250. every two weeks into there accounts for 20 years. Each child ended up having something like $115,000. each. We got so use to saving this money that we never thought about it, it just seemed normal.

Although each child ended up needing different amounts, after the youngest graduated, we still had a couple of thousand left over. Almost perfect planning by accident!

Now that all 3 are out of college, that $700. or so each month is extra money that just goes into our savings. My advice, just keeping plugging away with saving money, even a little amount will add up over the years.

 

[mpeirce]

but what would you do with $75k to get the most "mileage" out of it? All in a 529, part in a 529, or what?

Not sure if you are the parent or grandparent.

If you are trying to avoid gift taxes you can avoid that by paying tuition directly.

Not sure a 529 will help much since the main benefit is that the value inside it compounds tax free (if withdrawn for the proper purpose). And contributions to a 529 count as gifts as far as the $14,000 federal limit goes (above $14,000 a year and you have to track for federal gift tax purposes).

You also have to contribute to a 529 in cash, not stocks or whatever.

Frankly, I'd check with a CPA...

 

[RE2Boys]

This will likely not cover all expenses for 4 years of tuition, books, dorm living, etc. but what would you do with $75k to get the most "mileage" out of it? All in a 529, part in a 529, or what?

Thanks.

Sure didn't provide much detail! Just now starting college planning?

As mpeirce pointed out, the value of a 529 is to shield investment earnings from taxation if used for allowable college expenses. At 18, most of the advantage of a 529 is long gone!

If your income allows you to take the American Opportunity Credit, the first $4000 in TUITION expenses should come out of your regular income. The remainder can be funded from a 529. See https://www.irs.gov/Individuals/AOTC for details.

With the time remaining, I would stay away from equities...too short of a time horizon. Would only look at a short term bond fund, CDs, or stable value fund as investment choices, whether inside or outside a 529. If the money is not used for higher education, there is a penalty to withdraw earnings from a 529 (10%) in addition to the earnings being taxable.

Your state may or may not give you a tax break on deposits into a 529 plan.

You could consider the Colorado 529 Stable Value Fund.

 

[38Chevy454]

I am confused, is the kid 18 and starting college soon? Or you hope to have $75K by the the kid is 18? If former, 529 will not do much good since the advantage is the money in 529 grows like a Roth, tax free and can be withdrawn for college expenses. If saving for a future date, then 529 can be good.

I completely agree that the kid can go to junior college or stat university, more than adequate and much better cost than out of state or private college. Kid can also help working, full time during summer and even part time in school.

I have said it here several times, but I had a J-O-B scholarship. It was called 20-25 hours/week during school and full time during breaks and summer.

 

[Fedup]

At least have 1-2 year in cash. But this amount is not enough, of course it depends on the college. It barely covers one year and a half.


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[FUEGO]

If it's all in cash or investments today and that 18 year old is starting college in the fall, I'm not sure there would be a lot of advantage to contributing to the 529 unless your state has a tax credit/deduction. I suppose you could divide it by 4, contribute 1/4 each year, then spend it during the year for qualified expenses to take advantage of the state tax credit (other than enough out of the 529 to get the HOPE or other education credit).

For our state (NC), total estimated cost of attendance is $22k/yr. So $75k would be $17.5k per year for 4 years. That leaves about $4.5k per year on the student or parent.

Easy to cover that with a part time job, even just summers (450 hours at $10/hr). Fed student loans would also cover the shortage. A small scholarship or grant would go a long way toward covering the shortage.

As others mentioned, you might go to a 2 year school first where it's really inexpensive and they might live at home. Another idea is to encourage taking a full load like 18 hours/semester so they can graduate a semester early. Couple that with summer classes and graduate a whole year early. No need to work since the $75k divided by 3 = $25k/yr (average cost of attendance nationwide at public U's is around $24k).

Our own plan is to pay 4 years of tuition ($35k total per kid) and wing it on the room and board (loans, grants, scholarships, diverting our normal spending toward their college, kid gets a job, gifts from grandparents, etc). Unless the markets are just horrible over the next decade we should have more than enough, and possibly enough for a full ride. The kids are also on the academic path to get a lot of AP credits if they continue their current path of doing well in school (= possible 3 year graduation).

 

[REWahoo]

This post from the OP a couple of days ago leads me to believe his 529 question involves long-range planning...

Greetings, new to the board and very new to the investment world as a recent college graduate (and newlywed) trying to do some financial planning.

 

[Jimbo Slice]

This post from the OP a couple of days ago leads me to believe his 529 question involves long-range planning...

Sorry for not being more clear. The 18 y/o in question is a family member receiving a $75k cash inheritance, who has a partial scholarship to attend a state school that is still a bit a ways from home - so dorms/living expenses are necessary. Just seeing what you guys thought would be the best way to get the most mileage out of the money. Sounds like it may just be as simple as parking in it in savings/CD and taking it when needed.

Thanks for the responses.

 

[Greencheese]

In my experience there are several ways to lower your expenses without diminishing the fun of college.

1. Working, if possible have your child get a job working campus food service (or as an RA after freshman year). You'll typically get free room or board with the job on top of getting minimum wage which can save several thousand dollars a semester. As a bonus you meet a wide variety of people outside your major and have a new avenue to make friends. Plus if its a campus job then you don't need to worry about getting time off for semester breaks as the jobs should already be based on the school calendar. In my case I was pulling in $2,500-$3,000 a semester pretax on top of a free meal plan which enable me to stretch my 529 account further since I saved/earned probably $15,000 when all was said and done in college, after beer money was factored in of course. As a bonus it helped reinforce time management and kept me from getting tempted to skip classes like my less busy classmates did...

2. Summer classes at the community college. I went to college for accounting and during the summers would focus on non-business gen eds at the community college where the hours were far more flexible. Because of that flexibility I was able to take classes around my summer jobs where I was working 60 hours a week to help pay for school. I could not have cared less about taking an art class so I decided to go where it would be easiest to get done, why pay more than you have to for a class you won't even care about?

3. From the Bogleheads I've heard that a 529 counts against a child's financial aid potential. If that's the case then keeping the 529 off of the financial worksheets until senior year would be a good idea? Afterwards you could cash out the entire account and payoff most of the loans which ideally should have accumulated less interest than any financial aid you received.

4. Graduate early, duh College was tons of fun but if you can get out just a little earlier than everyone else AND already have a job by the time they get out then that's pretty sweet. Besides, I felt like that last semester for a lot of people was more writing senior sem papers/presentations and lots of job interviews for many individuals. If your child misses friends, they can still come back and visit more or less every weekend if they have a job that's typically 9-5 M-F. Couch crashing or staying with the significant other... errr I mean bible studying, was totally common at my university and roommates were generally fine with it.

 

[AndyS]

Our kid lives at home & attends University of West Florida on two academic merit based scholarships. We cover her books & fees; transportation; medical; food/housing/clothes. She makes about $1500 a semester on her scholarship leftover after tuition is paid which goes straight into her bank account. She doesn't work.

It'll be a different story when/if she goes to grad school.

 

[AndyS]

This will likely not cover all expenses for 4 years of tuition, books, dorm living, etc. but what would you do with $75k to get the most "mileage" out of it? All in a 529, part in a 529, or what?

Thanks.

This will likely not cover all expenses for 4 years of tuition, books, dorm living, etc. but what would you do with $75k to get the most "mileage" out of it? All in a 529, part in a 529, or what?

Thanks.

Well ... to get the most "mileage" out of the 75k .... s/he would do better to live at home & maybe invest the 75k.

Why must s/he attend a college away from home?

 

[Independent]

We paid off our mortgage early. Then "tuition" replaced "mortgage" in our spending.

 

[Options]

Step one - have them attend a community college for the first two years then transfer to a state school.

Step two - have them live at home

$75k should be enough.

We're targeting $100k/kid in 529's. (We have a separate income stream than our retirement that funds the 529's. So 529's are "off budget")

Another thought - have the kid work during the summer to pay for books and spending money.

Emphasis added. I couln't agree more with this statement. College is no more than an investment, and with today's outlandish tuition costs, I believe it's imperative to obtain the highest ROI.

Today, employers use an undergraduate degree as a minimum qualification in many jobs. They don't care where the degree came from, they just want the degree (unless you work in education, perhaps, where they ogle name brand schools and get the equivalent of an orgasm from calling people with a PhD "Dr."). At the undergraduate level, a degree from an ivy league school may win some additional points, and even then, only in some jobs.

Even a graduate degree should be looked upon as an investment, foregoing the overpriced private schools. Here again, for many positions, with not too many exceptions (perhaps so-called "leadership" positions, and even here there are many exceptions), employers do not care where the degree came from, as long as you have the degree.

Higher education is far beyond ripe for disruption. Sad to say, the product you are buying is a poor mismatch for the skills needed in the work world today and in the future. Higher education may teach people to think, and perhaps improve their writing/reporting skills, but too many books have been written detailing the failures of higher ed, providing suggested solutions, none of which have been or will be acted upon as long as no viable alternative exists.

I, too, would not spend over $75K.

 

[ivinsfan]

Sorry for not being more clear. The 18 y/o in question is a family member receiving a $75k cash inheritance, who has a partial scholarship to attend a state school that is still a bit a ways from home - so dorms/living expenses are necessary. Just seeing what you guys thought would be the best way to get the most mileage out of the money. Sounds like it may just be as simple as parking in it in savings/CD and taking it when needed.

Thanks for the responses.

Since it is an 18 year old just hope they have enough sense to parcel it out and not blow it on non-school stuff. Maybe split it into 4 CD of different length so it's a little harder to spend. I disagree about staying at home, it's an option, but I do believe there are benefits to an away from home, in state school.

 

[Tadpole]

I wonder if the University can be approached to barter a deal. What can you get for $75K upfront. Can you get four years of tuition AND room and board? (assumes the 18 year old completes what they start)

 

[DrRoy]

The $75K should come close if there is also the scholarship. Any additional should be modest. I agree that the 529 is not a lot of help at this point. You should probably keep the $ out of stocks with the short time frame.

 

[Big_Hitter]

I wonder if the University can be approached to barter a deal.

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