College savings, have questions, need help

[Tyche]

So for Christmas, we're opening up a college fund for the kid. She's about 18 months old, so it's a long term investment. My parents didn't do one for me, and I've obviously never been involved with this process, so I need some advice. It looks like a 529 is the way to go, but there are several 529 plans. I'm a bit confused, ask me any related questions and I'll do my best to answer them. The initial investment will be a few hundred dollars with my wife and I deducting amounts from our regular earnings to put into the account. Apparently the 529 accounts are transferrable, so I can do any state's 529 and use it at a KY institute. Anyone have any information, suggestions, experience?

[tyven]

i wish you were my parent. paying for college is the worst shit ever

[Devolver]

i wish you were my parent. paying for college is the worst shit ever

QFT. Im 4 years out of college and I think im still 2k in the hole, lol.

[Tyche]

My parents actually paid for mine, but they didn't save for it. I went to college and they paid the bills. Most of it was paid for already though, as my parents are divorced and my dad who makes less money claimed me on taxes for grant purposes. It still wasn't cheap >.>

[Tyche]

I was thinking that since the investment is so low right now, to just invest the 529 into a 12month CD to start off, but I really don't know what my best options are. I honestly don't even know what my 529 options are. I'm trying to think too far ahead before I even have a glimmer of ideas of how to get this ball rolling.

[Mizango]

Good call Ty, my experience is this. My daughter is 8, we have an account setup for her not only for college but for her when she turns 21 and out on her own. Weekly deposits of 100.00 between my wife and I and not to mention extra scratch here and there. Been doing this for some 6 years?

This is a good idea man, keep with it. We have ours off of a branch of our Money Market account. Auto drafting makes it that much easier.

[Devolver]

glimmer of ideas of how to get this ball rolling.

I Understand what your saying. and saving now will (obviously) be the best thing to do.

The route I took was basically hound my HS councilor and apply to every scholarship i could, then the rest was covered by a Pale Grant and a student loan (cant recall the interest on it, but its dirt low, and the grace period after you graduate to repay is tits.)

I would check your local bank and see what kind of rates you can get, and work from there. The worst that could happen is they tell you something you dont like, and you move on. Depending on the size of the town/city you live in, they usually have specialists that can help you work through it.

[Klutz]

Don't even bother. World's going to blow up in 2012.

[Tyche]

Such optimism D:

[Dimmauk]

Change his/her last name to Rodriguez, and you are set.

[Talus]

White people are the new underrepresented minorities in grad schools. If you can get your daughter through undergrad with a good academic record, she'll be set up nicely for grad school!

[Edit: Get a good financial advisor. The markets historically rise, but we're in a recession so I don't even know what the "safest" or best place for ROI for your cash would be. God knows I stopped checking my 401k, and it'd be nice to see it rise back up to pre-2008 levels within the next year or two.]

[Tyche]

I think I found my bread and butter. Kentucky is one of a handful of states that offer a TIAA-CREF savings plan. Called the guy and it seems really good. They offer several investment options including a no-risk option that guarantees the principal and a small interest rate. Given, that rate is only at 3.7% right now, but it's guaranteed, and the other investment options are churning out an average of about a 20% loss since february. I can change the investment options once a year, so that gives me the opprotunity to take an assured investment til the market settles down, then get into some riskier options in the first few years and settle to a safer portfolio later on. Oh, and it's also tax deferred similar to a Roth. Weeeeeeeee.

[Headspace]

Also it's easy as hell to get money from the state for school if she graduates in KY and goes to a KY college/univ.

[Darus Grey]

Your best bet right now is actually to invest in the market.

This is an 18yr investment so what the market is doing right NOW doesn't matter. By buying in now you're buying in at *near* the bottom, it doesn't matter if you lose for even a couple years.

Eventually the market is going to rebound(and if it doesn't we're fucked anyways- This is what we call a hedged bet...long-term it's hard to lose), and when it does those initial investments are going to rise far above the return rate you'd get on anything else.

Historically speaking we'll experience another bubble in about 10-12 years, this is around the time much like a retirement fund you want to pull the assets out of the market and start putting them into more stable things like CDs as your daughter approaches actually going to college. In terms of risk/stability index funds are the way to go, a variety of them...it's rare to out-perform the market.

Even if you ignore all that, do not look at the short term when making a long-term investment.

[archibaldcrane]

^

What he said.

[Norelco]

My dad made me take out student loans for my college. =(

He could have afforded it too. He was apparently teaching me a life lesson.

[Tyche]

Yeah, I talked about starting out risky and settling into a safer portfolio down the road in my last post. I just don't know how I want to start for the first year. I could conceivably lock the initial investment into 3.x% for 6 months then throw it into stocks. I guess since the initial investment is going to be such a small amount, I'm not really risking much anyway, so may as well throw it all into the market.

[0ni0n]

You should definitely take advantage of the 529 plan since money you put into the plan are exempt from state tax in many states. The tax savings may seem minimum at first, but they really add up in the course of 18 years. Not to mention, the gains from the principal you invest in the 529 are also tax-exempt should you use them for educational purposes as intended. The only disadvantage with 529 I see is that it will adversely affect your daughter's eligibility to receive financial aids in the future.

Assuming you want to fully fund your daughter's college education, that will be 100k in 18 years (25k x 4). Given that your investment portfolio will grow indefinitely at 6% a year, you will need to put in about 3200 a year to get that 100k at the end of year 18. Historically speaking, investing in the stock market will yield an 10~12% annual return while fixed income securities yield about 6%. By having a well diversified investment portfolio comprised of equities and fixed income securities (stocks and bonds), you should have no problem get a 6% annual return.

[foopy]

(disclaimer) what i know is specific to NYS 529, so i may be off slightly when it comes to your state.

its usually best to open a 529 in your own state, you'll get a tax write off on your state (NOT federal) income tax up to a certain amount every year (10k if you file jointly in NYS, last i checked). does KY have income tax? this is the only reason you would limit yourself to your own state's 529.

you seem familiar with a roth IRA, so i'm sure you understand the benefits of tax deferred accounts. you'll be pleased to know that if you make a qualified (spent on tuition basically) withdrawal, any tax owed is forgiven.


the type of investment i would look for are age-based funds. they are several funds of differing risk levels. your portfolio would move from aggressive while your daughter is young, to progressively more conservative as your daughter approaches 18.

i had typed out another 5 paragraphs, but i didn't want to overwhelm you with info you probably didn't need. if you ask specific questions, i'll try to answer them.

edit: ya what onion said^^