We’re naturalized Americans with no family in the US, so we don’t have anyone to ask what they’re doing. Also, advice about it online is remarkably inconsistent, ranging from like $20 a month to $2000 a month. I understand that it’s because it is strongly dependent on personal finance and priorities, and nobody’s going to have a straight answer for me, but still, I am interested, what is everyone else doing, and what is the thinking that landed you on that number?
Obviously, I have no idea what my kids will want to be, so I can’t use that as signal. Doctor? Painting artist? Woodworker? Nobel-prize-winning physicist? Beats me!
Some details about my personal situation: I don’t really have any major financial goals except for this and my retirement (I own my house and it’s paid for). So, I can put some decent money in there, but this is competing with my retirement funds, and it’s important to me that I don’t depend on my own kids during my old age, so I don’t want to overdo it.
A thought I had, but I don’t know if it’s relevant: with the recent ability for kids to convert to a Roth IRA up to $35k with no penalties if they don’t use the funds, has that become the new golden number?
My state gives a small tax incentive up to $3000 in contributions per child per year, so we put in $250/month for each of our kids to maximize that. If you live in a state that gives any sort of tax incentive as well, take a look at that as a starting point.
I’d recommend prioritizing your retirement first and foremost. If need be, your kids can take out loans for college but you can’t do the same for your retirement. With that in mind, I’d put what you need to toward that goal and then use any remaining funds toward the 529.
Prior to financing college education for your children, you need to make sure you have no high interest rate debts. So, all credit card statements are completely paid off monthly, no high interest personal loans, etc. Then you need to make sure you are paying all bills on time, that you are properly saving for old age (you need more money than you think), and then you are saving for upcoming expenses (do you have an old car? Are you saving for repairs and replacement, etc.?). After all your required monthly expenses are met and your savings for retirement and near future are met, then you can consider saving for children’s education.
So, you’re ready to put money into a college account. First, does your state have a good system out of 529 and a great state school? Some states have college savings plans for their school system that are hard to beat. If they do, you should seriously consider that plan over a 529. Many states will have better tax savings for their plans than a 529, etc. You really need to sit down and look at that stuff. Do the math and compare. If you still decide that the 529 is best for your situation, look at the various 529 plans available and what tax benefits are best for the state you live in, and compare that to the investment opportunities available and their expenses (ER, front load, back load, %fee, etc.). Once you’ve covered all of that, if you have a plan that you want to invest in then you need to save up for their minimum (unless they have no minimum balance), and then you put that money into the plan. Once the money is in the plan, make sure to go into the plan and invest that money into one of the investment options. If you do not know which invest is best, look for a target date fund that is targeted for the year that your child would go to college. Some 529s just have a questionnaire finding out your risk aversion, and then they will put the money into a 529 portfolio that agrees with your risk profile and then they adjust that towards lower risk investments as you get closer.
If you are sitting on a pile of cash for this, and still do not know what to do, please put that into an online high interest rate savings account. If you have a personal brokerage account outside of a retirement savings area, you can see what short term interest CDs you can get. I’m able
