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Author: ergonomicalistic Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 8174  
Subject: Anyone succeeded in paying for college? Date: 7/14/2014 2:38 PM
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Hello Fools -


Anyone succeeded in paying for college via investing (yourself or your child)? I would like to hear your story if you would share some details.

(i.e I opened a (Coverdell/529/X) with "Someone/TD/Vangurad/Blah", investing "someamout" (weekly/monthly/yearly) and achieved a "Some Return".

My background: I have a new born we're planning for. Right now I am looking at opening a CoverDell to self direct, max that out (or close to) and compound above what a 529 plan would (or would not return). Goal is to having about $100k total in ~18 years via a 10% annual rate via smart investing and low fees.

I am unconcerned what the cost of college will be, I just want to make available about 100k to the little one.

NOTE: I am not interested in theory in this post per se, just wondering if anyone has actually achieved their school savings goals.


Thanks in advance
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Author: 1poorguy Big funky green star, 20000 posts Top Recommended Fools Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8143 of 8174
Subject: Re: Anyone succeeded in paying for college? Date: 7/14/2014 2:53 PM
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Difficult question to answer.

I've been investing since I was in college. Back in those days I'd send in $50 when I could (a few times a year). Funds like Monetta allowed such small contributions. I also opened an IRA and funded that as I could.

As I progressed in life my style changed a bit, as did my resources, but I continued investing. When the kid came along, I didn't really change much. In hindsight I should have been more aggressive to learn about 529s and such. But I did have in my mind that my investments were now for her college and our eventual retirement, both. I did finally open the 529 also.

So today she has the 529, plus I can tap my brokerage account as needed. I can tap it via cash-on-hand, margin loan, or I can sell stock. We are fortunate that she received a scholarship that pays 90% of her tuition, meaning we have to make up the 10% plus books, room, board, etc. That is still substantial, but manageable.

1poorguy


(I am no longer in Monetta, and all my mutual fund holdings are either IRA or 401K with the rest (taxable) being a small group of stocks which I understand and monitor.)

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8144 of 8174
Subject: Re: Anyone succeeded in paying for college? Date: 7/14/2014 3:50 PM
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Anyone succeeded in paying for college via investing (yourself or your child)? I would like to hear your story if you would share some details.

Yes, for two kids. Eldest costs us about $40K/year and we don't yet know how much Youngest will cost us, but we will pay it. It is their inheritance paid as a front load. Fortunately, Eldest will have just one semester to go when we retire next year, and we have funds in the bank for Youngest who will graduate high school next year.

I don't know that there is any magic to how we did this. Mostly, we are content with what we have, have not increased our standard of living since before the kids came along, when we went from two incomes to one. All raises and bonuses pretty much got saved, then when I became a SAHM I taught myself how to invest. Some luck along the way for sure, some stellar, some bad. I am a bit of a contrarian so the various bubbles bursting didn't hurt us all that much, in fact giving us the opportunity to put more cash into the market when people were fleeing. IMO with so many undisciplined non-professionals now investing their own funds in index funds, I think it's kind of dangerous to have much in them, though others will tell you it is the only way to go. I typically did individual stocks when I had the investments, which are now in the hands of a financial adviser, who invests in mutual funds.

I preferred to keep the funds under my control, skipping the 529 plans and focusing on coverdells. DH earns a solid pay in an industry that has continued pay raises, and so far after the first year paid by the coverdell, (we've been able to pay Eldest's costs from his paycheck, though that has effectively halted further retirement savings. We had the kids in our 30's and were well established in our careers/saving/houses by the time they came along.

We also put money into I bonds, which can be redeemed for college costs without federal taxation on income. Timing for that now is less than excellent, but we at one time were getting over 9% and still over 6% on most of the bonds. That along with the Coverdell should pay for the first two years of Youngest's schooling, the rest coming from savings.

So I don't know if that helps. Honestly, we are savers, frugal in our way, very low maintenance. Seeing my parents retire in their 50's, I've had early retirement as a goal since I was a teen, but very determined to pay my kids' college costs after seeing how hard it was to bounce back from paying my own way through college. We tend to evaluate discretionary spending in terms of is it worth working X number of months more if we spend that now rather than invest it? When you look at how much something costs in terms of compounded invested value 10 years down the road, it's kind of easy to pass things up.

Set goals, be disciplined, save, save, save and invest those savings. Be frugal and pay yourself in rising investments rather than new cars or fancy vacations. It is rare to be able to have everything, so set priorities.

Best of luck, and remember, the best things in life ARE free.

IP

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8145 of 8174
Subject: Re: Anyone succeeded in paying for college? Date: 7/14/2014 4:02 PM
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ergonomicalistic: "Right now I am looking at opening a CoverDell to self direct, max that out (or close to) and compound above what a 529 plan would (or would not return). Goal is to having about $100k total in ~18 years via a 10% annual rate via smart investing and low fees."

Given that maximum Coverdell ESA contribution is "$2,000 per beneficiary per year combined from all sources", that seems like an ambitous goal.

$2,000 per year invested Jnauary 1 each year and earming 10% annually (net of costs), would, after 18 full years, be worth $100,318.18 - $318.18 over your goal, but only if you start with the maximum (not close to) and continually fund at maximum level. Start with $1900 in year one, and you fall short.

We have had good success with the Utah 529 plan.

Regards, JAFO

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8146 of 8174
Subject: Re: Anyone succeeded in paying for college? Date: 7/14/2014 5:15 PM
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I'm not sure what you are looking for but all three of ours graduated college without loans. They were responsible for books and personal expenses. We paid for four years - room, board, tuition and fees and transportation to and from school.

Two went to public out of state and one went private. The oldest is now 32 and the youngest is 26. We told them what we would do and the choice of college was theirs. Two of them went with some scholarship money and the third chose a college where he didn't have any. Their college choices had no financial benefit or detriment.

There isn't any magic. It was a priority for us. We didn't have a specific dollar goal but began saving when the oldest was born and would have postponed retirement to get it done. My husband was diagnosed with what was a terminal illness a few months after our youngest graduated and died about 18 months later. College is a gift I am glad we gave to the kids. None of them had been to a Disney property and they could count vacations on one hand.

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Author: reallyalldone Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8147 of 8174
Subject: Re: Anyone succeeded in paying for college? Date: 7/14/2014 5:18 PM
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And one other thing-I began moving money to safe places when each began high school - one semester's money every six months. Tough to do when the market was going up but later it looked pretty smart.

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Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8148 of 8174
Subject: Re: Anyone succeeded in paying for college? Date: 7/14/2014 6:41 PM
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I'm very similar to rad. We started saving when I found out I was pregnant, and diligently put money aside for their college costs out of every paycheck. I used a few DRIPs so that all my dividends were reinvested, and I increased what we saved both for them and towards our retirement by splitting raises with them. We kept our same standard of living for years with entire raises going into savings, and that helped a lot.

I also did things like move money budgeted for them into college savings when an expense went away. When they got out of diapers, I put the diaper money into college savings. When they stopped needing full time daycare and just used after school care, the savings was so much that I split it with half going to college savings and half to retirement.

As IP mentioned, we consider their educational expenses to be their inheritance, and if there is anything else left when we die, that will be gravy.

Like rad, we had the kids pay a few things during college, but they knew about that all along and could save up. They were responsible for books, spending money, car insurance, and gas. We paid for everything else.

I saved a very small amount in 529s for each of them, and then spent that money the first year to clear out the accounts. I didn't like the lack of control in terms of not being able to choose individual stocks, and I always had a concern that DS may not go to college, and with twins, my kids were in school the same 4 years, so I didn't want to risk the money not being spent on him, and not having another child after that to use the money.

We prioritized the kids' college above retirement, and so instead of retiring at 56, which was one year after they graduated, I will be retiring at 59, but that is my choice, and I am happy to have paid for their education.

We took few vacations, but they have been to FL a few times as they had grandparents down there. I don't think they felt deprived at all, and they never really wanted for anything. They notice now that all their friends are struggling with student loan debt, but they don't have any, and with DS being a chef and making very little money, student loans would have crushed him.

As was also mentioned, move the money out of the market, no matter how good the market is doing, when the kids are freshmen and finish by the time they are sophomores. I moved all their money to cash in 2006-2007, and when the market crashed in 2008, they did not need to use a back-up plan and could still go to the schools of their choice.

I spent a lot more than the OP is planning on spending, and was able to do that via careful savings, investing, and knowing our priorities. I would absolutely do it again.

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Author: NaggingFool Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8149 of 8174
Subject: Re: Anyone succeeded in paying for college? Date: 7/14/2014 7:54 PM
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I have a four year old. I figure her Coverdell (started when she was born) will pay for one year of college, our other investment accounts (i've been saving outside retirement accounts since I paid off my college loans over a decade ago) will pay for another year, my inlaws will cover for a third year (we know they are setting money aside for her) and then we will pay for a fourth year out of other savings or income (probably reduced contributions to retirement savings) from the four years while she is in college.

If it's a stretch to put the $2k in the Coverdell perhaps you should put money in a Roth instead. Same tax advantages but more flexible. For us the Coverdell money is after our Roths are maxed out.

- Megan

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Author: CheersSRX One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8150 of 8174
Subject: Re: Anyone succeeded in paying for college? Date: 7/15/2014 6:13 AM
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Yes.
At first, we opened up UTGMA accounts for both girls, but soon after transferred each to a Fidelity 529. I believe the 529s were linked to New Hampshire, but I've never had those details very well, and it never made a difference.
When the (two) girls were very young we contributed $300/month/girl, then raised it to $600/month/girl when we could afford to do so.
Our goal was to have $100K/girl when they were ready. Both had about $81K, so you could say we came up a little short. Fortunately, oldest will likely need just a little less; youngest, who enters here second year this fall will need maybe $20K more. So we came up a little short, but within range.
Generally, we invested with Fidelity mutual funds... Capital Appreciation, Growth and Income, and the like.
When fall 2008 hit we panicked and sold off everything to cash. Of course, that turned out to be a mistake, but were within range and couldn't afford to mess up 15+ years of savings.

Good luck. It can definitely be done, with a long time horizon and prudent investing.

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Author: CheersSRX One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8151 of 8174
Subject: Re: Anyone succeeded in paying for college? Date: 7/15/2014 6:15 AM
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Edit that lat post -- I think the numbers were 1/2 what was cited. $150/month girl at first, then $300/month/girl.

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Author: PSUEngineer Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8152 of 8174
Subject: Re: Anyone succeeded in paying for college? Date: 7/15/2014 1:55 PM
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I'd suggest my method won't work for most people. I just pay as I go. I did save up about one year of college costs with each kid using Coverdell and 529. I just contributed the amount needed to get the state tax income break in the 529.

PSU

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Author: ergonomicalistic Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8153 of 8174
Subject: Re: Anyone succeeded in paying for college? Date: 7/21/2014 8:20 PM
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Thank you to everyone who replied. I definitely appreciate the perspectives!!

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Author: canonian Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8155 of 8174
Subject: Re: Anyone succeeded in paying for college? Date: 7/28/2014 11:06 AM
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Our kids are 14 and 12. Without putting in another penny if we earn 5% a year we will have enough for them to attend school for 4 years each, 5+ if they do community college the first year or two. I'm not saying we wont save a little more, just simply where we stand right now.

This is for a decent in state school.

The bulk of the money is in Stocks, one Mutual Fund, and some more in Coverdel accounts.

We started saving in 2000, hit some serious home runs, and I did not bail on any of the corrections along the way. The issue I'm confronted with is when do I put all or some of the money in cash. Maybe I'll start a thread on that.

So in essence yes success, however who knows what will happen in the next 4-6 years (that is our final time horizon).

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Author: canonian Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8156 of 8174
Subject: Re: Anyone succeeded in paying for college? Date: 7/28/2014 11:08 AM
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And one other thing-I began moving money to safe places when each began high school - one semester's money every six months. Tough to do when the market was going up but later it looked pretty smart.

I'm about at that point, although right now the though of going all cash is tempting.

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Author: davetheDINK Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8157 of 8174
Subject: Re: Anyone succeeded in paying for college? Date: 7/31/2014 10:40 PM
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My dad began teaching me to invest even before I was a teenager in the late 80's. As I entered College in the mid-late 90's, there was enough money because we invested consistently in a UGTMA account.

THE BIG MISTAKE: There is an old rule that says "If you need the money in 5-10 years, don't put it in the stock market." I didn't heed that warning, casually assuming I was smarter than others...and I made some good, some lucky decisions. Remember the tech bubble in 2000-2001? Global Crossing? WorldCom? Tyco? Yes, they all were great growth stocks until reality/fraud caught up with them. I lost money in all of them. Pennies on the dollar. What could have paid for so much of my wife's college debt (think 2nd mortgage size) is now a vapor.

My dad's rules were, 1) don't mess up the account (inferring reckless investing of or spending from the acct), then it's not yours anymore 2) invest the same for your kids to pay for school.

TAKEAWAY: like a previous poster said in this thread, when we are within a couple years of college, I will start backing out of stocks and putting money in to cash, CD's or U.S. "I" bonds, where the proceeds are not taxable if used for college. Much more secure than stocks. Do this no matter the market condition.

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Author: inparadise Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 8158 of 8174
Subject: Re: Anyone succeeded in paying for college? Date: 8/1/2014 6:59 AM
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...like a previous poster said in this thread, when we are within a couple years of college, I will start backing out of stocks and putting money in to cash, CD's or U.S. "I" bonds,....

Dave,

There are time requirements for I bonds, and you have limits on how much you can put in at once. They are a better investment as you go along, rather than a dump to safety. When we invested in our I bonds it was our emergency fund that we figured if no emergencies occurred, we would use it for the kids' college costs. They have changed the purchase restrictions so that it is tougher to put much in at once.

There are also strict rules about how the bonds have to be titled to be tax preferred for education. If anyone buys a bond for your kid, it has to be in the name of an adult at least 24 years old at issue to be tax advantaged.

When can I cash (redeem) an I Bond if I need the money?

You can cash your Series I bonds anytime after 12 months. You receive the original purchase price plus interest earnings. I Bonds are meant to be longer-term investments; if you redeem an I Bond within the first 5 years, you'll lose your last 3 months interest. For example, if you redeem an I Bond after 18 months, you'll receive the first 15 months of interest.


https://www.treasurydirect.gov/indiv/research/indepth/ibonds...

How much can I buy?

Note: In any one year, for any one Social Security Number, you can buy $10,000 per year in electronic I Bonds.

(For paper I bonds bought with your IRS tax refund, you can buy up to $5,000 per year, per Social Security Number).


http://treasurydirect.gov/indiv/research/indepth/ibonds/res_...

The Education Savings Bond Program
permits qualified taxpayers to exclude from their gross
income all or a portion of the interest earned on the redemption of eligible Series EE and Series I bonds issued after 1989. You must be at least 24 years old before the bond's issue date. To qualify for this exclusion, the taxpayer, the taxpayer's spouse, or the taxpayer's
dependent at certain post-secondary educational institutions must incur tuition and other educational expenses. Persons with incomes above certain thresholds may not be eligible to participate. The tax exclusion is described in 26 U.S.C. 135(see GPO.gov)


http://www.treasurydirect.gov/forms/savpdp0051.pdf

It can be a great tool for a portion of your account, but you have to know the restrictions and the rules or you might not be able to use them as you hope.

IP

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