My mother is a high school counselor at a really good high school in FL. If you didn’t know, October is the early admission scramble month. Most of the applications are due November 1st so we had a few conversations over the last few day about why some kids choose to apply to specific schools even though it may not be worth to do so financially. And how do you even know if it is worth to apply and go to one school versus another when the price tags are so different? October is also the new FAFSA deadline month so in its honor, let’s talk about college today.Read More
A few of my friends who just had or are about to have babies are asking me about 529 plans and whether it is worth opening one. Like everything else in financial planning, it depends, but this would be a great time to discuss what 529 plans are and when it makes sense to open them.
What is this thing?
A 529 account is a savings account designed for higher education. That’s it. It’s that simple. You put some money in, the money grows, and your child uses it years down the road to go to college. You often hear the words “tax exempt” or “tax advantage” but make sure you are clear exactly what that really means. A 529 does not work like a 401(k). Your current taxes will NOT go down if you contribute to it. However, as long as you take the money for what the IRS defines as qualified education expenses, all the interest that has been accumulated will be tax free. This is a great advantage.
A 529 is a general blanket term that may refer to a savings plan or a prepaid tuition plan. Above, I am referring to the “savings” plan. Some states have a program where you prepay the tuition and your child can go to any in-state school for free. That is NOT what I am referring to in this post. Here is a good guide the state of FL put for us about the differences. If your state offers both, think about your baby and where he or she will be years down the road before making this choice: http://www.myfloridaprepaid.com/learning-center/savings-vs-prepaid-plans/
Is a 529 plan worth it?
So let’s get back to the 529 savings plan that lets you use the money anywhere you want. When young parents ask me what’s better, a 529 plan or a savings account, the answer will always depend on “what exactly do you need this money for?” Obviously no one knows; your baby was born 5 days ago but if you are the type of family where going to college is not a choice and the money will indeed be used for college, a 529 opened at birth wins. Why is that?Read More
The simple answer it NO, no matter how much you love your child, trading in retirement savings for the cost of your children’s tuition is a pretty bad idea, especially when there are alternatives. This is usually the case when one of the child’s parents works for a university. So today, I am going to focus on the financial aspect of getting your child a college degree.
Here is a real story. This weekend someone came to me for a financial decision analysis. Let’s call her Julie. Julie has a daughter who would like to go to the University of Arizona next fall as a freshman. The out-of-state tuition is a little over $30k per year. Alternatively, Julie’s daughter could also attend a school in the Cal State system (she is a professor here) and use the fee waiver benefit. For anyone who is not current on the Cal State costs, the academic year is about $6,500 including fees, but if you are a Cal State employee, you can pass on up to 6 credit hours to your child for almost nothing. This means the academic year will cost you around $3,400. So Julie came to me to ask what the impact of sending her daughter to Tucson would have on her life.Read More