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27: Saving For College

  1. Prioritize your retirement savings first. There are no student loans for us in retirement. It doesn’t mean you can’t save for your children’s college education but make sure you have enough saved for yourself first so you don’t burden your children when you can’t work.

  2. Prepaid Tuition - GREAT option for people that don’t have a lot of money saved or don’t think they’ll save that much but don’t want their children to borrow money or take out student loans. This lets you prepay the tuition at today's tuition rates at eligible universities - mostly state schools.

    1. For example, FL prepaid. If you want your child to go to a state university and they are in 6th grade. If you paid $300 a month (or $26,000 total), they would have 4 years completely paid (value of over $100,000)!

    2. Only 9 states have it: Florida, Maryland, Massachusetts, Michigan, Mississippi, Nevada, Pennsylvania, Texas, Washington

  3. 529 Plans. Investment savings plan specifically for college.

    1. Money grows money tax-deferred (which means you don’t pay taxes while it’s in the account)

    2. TAX-FREE if you take it out for qualified college expenses.

    3. If you go with your state plan, then it’s free from state taxes as well!

    4. It doesn’t matter which 529 plan you choose, you can go to college in ANY state plus about 400 int’l schools are eligible.

    5. Can only have one 529 plan per child but anyone can contribute (i.e. grandparents, aunts/uncles)

    6. No maximum contribution but only $16,000 per year can qualify as a gift tax.

    7. STILL check fees. Different plans have different fees. I.e. NY State with Vanguard is super cheap. West Virginia, Montana, and Hawaii have the highest expenses. Here is an article listing the cheapest and most expensive:

    8. Does it affect Financial Aid? Yes - but the tax-free investment gains you’ve earned in your 529 account could likely outweigh this loss. However, it’s also difficult to get true financial aid based on income and if you can save, I’d rather you saved than not.

  4. How to Invest College Savings. Most plans have an age-based plans which means it’ll become more conservative as your child gets closer to college. For example: if your child is 2, it’ll be 90% stocks and 10% bonds but if your child is 17, it'll be 70% bonds and 30% stocks.

  5. What is a UGMA? It’s what people would save for college before 529. Uniform Gift Minors Act. It allows parents to save money and invest in their child’s name but maintain full control until their child is 18. Not good if planning to apply for financial aid. VERY FLEXIBLE. You can use the money any way you like and open it wherever you want. You save money on taxes because taxed at the child’s tax bracket. Consider opening at Vanguard.

  6. How much should I save? For example, if your child is 5, you’ve saved $1,000 already and can save $100/month. You are gearing for a state school. At this rate, you’ll have 40% of college costs. If you can save $270/month, you’ll have 100% of the costs. Check this calculator.

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