August Mortgage Update and ponderings on 529 plans

Last month (July):

Balance: $102,221.27
Years left: 8.666666667
P = $798.18, I =$416.22, Escrow = 621.66

This month (August):

Balance: $100,747.56
Years left: 8.5
P = $803.97, I =$410.44, Escrow = 621.66

One month’s savings from prepayment:  $2.62

Hopefully by this time there’s a new addition to the family!  If not, I hope ze comes out soon.

In any case… For DC 1 we’ve been putting away $500/month every month since ze was born.  Ze has a pretty sizable kitty now, and is on track to be able to pay for the private school of hir choice should we keep this up (depending on the calculator we use and the assumptions we make).  We’re hoping to be making enough money that we don’t qualify for financial aid.

The question is:  What should we do for DC 2?  We could do the same thing, ignoring inflation, and start putting away another $500/month.  Then DC2 will also be on track, give or take, to pay for the private school of hir choice come college time.

The problem:  What if DC1 decides to go some place that doesn’t cost hundreds of thousands of dollars?  What if ze gets huge amounts of merit aid*?  What if I move to a university that pays tuition costs?  Basically, what if ze doesn’t liquidate hir 529 for school?  Then we’ll want to be able to transfer it directly to DC2 (since we don’t really believe in paying for graduate school as much as we believe in paying for college), but if DC2’s 529 plan is also pretty full we might end up with more money in 529s than we actually need.  We would then have to transfer it to some other relative, pay for our own kids’ graduate school, or take the money out at a penalty (in which case, why use the 529 in the first place?).  None of those options are appealing.

However, there are several years between DC1 and DC2, so in theory if we saw DC1 costing less than predicted, we probably could just stop putting money away to DC2’s plan at that point.  Right now putting $500/month away probably isn’t going to put us in any danger of oversaving in 529 plans.  We, of course, may have to readjust once our work situation changes.

So I guess that’s what we’re gonna do.  Put $500/month for each kid until we have some reason not to.  After all, it’s the early savings that are going to benefit the most from the tax advantage since they’ll have more time to generate earnings.

*Currently it looks like there’s a way to take money out without penalty up to the amount of a merit scholarship, but there’s no guarantee that will still be the case in the future.

29 Responses to “August Mortgage Update and ponderings on 529 plans”

  1. NoTrustFund Says:

    I’ve also been saving the same amount for each kid, although our youngest is not even a year yet. My rational is very similar to yours- if in a few years we feel like we have enough in 529 plans we can adjust savings downward. Save when you can! I also prioritize putting money in the fund of our oldest. So far we’ve been able to find both but that may not be the case every year.

  2. Kellen Says:

    I’d guess it’s more likely that if DC1 knows ze can go to any college ze wants, ze won’t pick a cheap one, and won’t pick the one mom teaches at. It happens, of course, but I think it’s less likely. Also, I would guess the kids will get financial aid for graduate programs, since those tend to be more merit-based, but if they want to do law school or an MBA, the extra money would be super useful. (Assuming you can use 529 plans for those?)

    • nicoleandmaggie Says:

      I don’t know if you can use 529 for grad school — #1 probably knows, but she’s busy having a baby right now! I doubt she intends to fund grad school for anybody, though.

      • becca Says:

        A quick google confirms my response- it looks like not only can you use them for grad/prof school, you can use them for anybody family members grad/prof school. So you could go get an MBA to use the diploma to wallpaper your bathroom, if you wanted. Or even grandkids.
        Given that context, I can’t see worrying about ‘oversaving’ quite as much. But I’m the kind of person who’d get an MBA just to wallpaper her bathroom, so I might be weird.

  3. Holly@ClubThrifty Says:

    We are not saving nearly as much as you, BUT we have been saving for both of our kids since they were babies in the College 529 plans. In Indiana, there is a fairly generous state tax credit for saving in a 529 plan so we take advantage of it. I do wonder sometimes what we will do if (heaven forbid) neither one of our kids goes to college. I think that is very unlikely so I’m saving anyways. I’m not as worried about oversaving as you though- since we aren’t able to save as much.

    With that being said, I think it’s awesome that you are saving so much for your kids education. What a huge gift you are giving them!

  4. J Liedl Says:

    With Youngest’s autism diagnosis, we know that we’re taking more time before she starts at university or college as well as that she’ll be doing her post-secondary work locally. In other words, more of the savings in her name will probably roll over to her sister’s more expensive educational options (university away, already plans for grad school). We’ve kept up her savings at the same rate (not nearly as healthy as yours, but neither kid wants to go to U outside of Canada so costs are significantly lower.) I still believe it’s good to put in as much as you are comfortable with for each individual, at least until you see if the elder child’s not going to follow through on PSE.

  5. Leigh Says:

    You are so close to having a five figure mortgage balance! Next month!

    If you start to think that you will have too much money in the 529 plans, you could start putting your $500+500/month into a taxable account so that if you don’t use it for the kids’ school, it’s just your money. I know that my parents had a lot of money for our education outside of any tax-advantaged accounts.

  6. hush Says:

    Good for you for having 529s! My hunch is your kids are going to have the numbers and the ambition to go to top $$$chools. I bet you’ll need every penny in those accounts. So you might end up with more money in 529s than you actually need – then you’ll pay for your kids’ grad school. What a good problem to have.

    • nicoleandmaggie Says:

      Top schools are really cheap if you don’t have a ton of income…but we’re hoping to have the income and savings by that point that our kids won’t qualify for aid.

  7. bogart Says:

    I replied! Where’d my reply go? I said (a) I’m with Hush on “good problem to have,” and (b) you can use the leftover 529 funds to support yourselves through cheese-making school after you retire (including your living expenses, if you go full time).

  8. Bardiac Says:

    Here’s my quirky response as a second kid. Put the same amount in, and if you realize you aren’t going to need it for the first, then rebalance.

    It feels HORRID as a second kid to think even for a bit that your parents don’t care as much about you or your future as your older sibling. It isn’t necessarily logical, but when you’re a little kid, it’s not about logic always.

    • nicoleandmaggie Says:

      Yeah, we’re planning on paying the full tuition etc. wherever they go. My parents ended up spending a lot more on my sister than on me because I got much better financial aid, but it doesn’t bother me– we still got to go to the schools of our choice and left without debt.

  9. Comradde PhysioProffe Says:

    One important relevant quantitative factor that you didn’t explicitly address is how onerous the penalties are for withdrawing money from one of these accounts that you don’t then spend on education.

    • nicoleandmaggie Says:

      It’s the standard withdrawal penalty for tax advantaged stuff– 10% (and I believe you also lose the tax advantage).

      • Comradde PhysioProffe Says:

        I was thinking that if you end up with too much money in that account, since you can spend it on any family member for any level of school, even if you don’t want to just give the money to a family member (e.g., like you don’t want to pay for grad school), you could use it to offset other gifts that you do plan to make (or even recapture the value from the recipient in other ways).

      • Comradde PhysioProffe Says:

        Yeah. Like if you don’t want to pay for your kid’s grad school like you said, but you do want to buy them a sailboat, you can just pay for the school instead of the sailboat.

        Or if you don’t want to give them *anything*, you can make a deal where you pay for the grad school from the tax-advantaged account, and then have them buy shitte for you up to an amount that splits-the-difference in the amount of money you gained from having put the savings in a tax-advantaged account. That’s probably tax evasion, though…

      • nicoleandmaggie Says:

        That does sound like tax-evasion. And uh, no, no sailboats. No housing down-payments. Possibly their kids’ education if they have kids…

  10. frugalscholar Says:

    I put away room/board /books costs for each child. They did get some merit aid at private schools, but elected to go to public institutions–because they each got National Merit, certain schools were willing to give them tuition, room, and board. I did not take out the money as allowed. I figure I can help w/ grad school if they decide to go. Part of me says: paying a penalty in cases like this is a GOOD thing (if it comes to that). Unlike many, I feel that they should share in the financial consequences of their choices, so I would be happy to put the money towards a down payment when the time comes.

    • nicoleandmaggie Says:

      I think it would have been a bad choice financially in the long-run for either of us to have gone to the state flagship rather than the private schools of our choice (me because it would have cost more in the short-run because the state is cash-strapped and the private school was flush, my sister because women in her major drop out in high numbers from the state flagship but not the regional-ivy she went to), and even worse if we’d gone to one of the regional schools offering us full-rides because of national merit.

      I don’t think expensive non-prestigious schools are worth the money, but I do think my sister and I were able to jump up a socioeconomic class based on where we went to college. My sister in particular is only in her 20s and makes an obscene amount of money in a low cost of living area with just a BS.

      • hush Says:

        Expensive non-prestigious schools are worth the money, I totally agree. DH and I were also able to jump up an SES level based on where we went to college – almost positive that would not have been the case had we accepted regional/state full-rides that were not at all attractive to our early employers and grad school admissions peeps (yes I know there are exceptions, but usually they involve rich dads we don’t have.)

      • hush Says:

        strike that – *NOT* worth the money… “expensive non-prestigious schools are NOT worth the money.” gah!

  11. First Gen American Says:

    I am not saving that much in a 529, but we are saving. I would rather have more flexibility with my money, so we have only been saving token amounts for the kids in those accounts. We have a hefty emergency fund in bonds that we could tap for school when the time comes. I don’t know why I don’t love the 529 as much as my 401k. Perhaps it is all the unknown variables. With 401k ‘s, you know you will retire someday. But with education, it’s harder to predict spending needs.

  12. Ask the grumpies: Next stage financial advice | Grumpy rumblings of the (formerly!) untenured Says:

    […] for our kids, and we’re planning on covering the entire bill, so we’re putting $500/month away for each kid in their respective 529 plans.  As I’ll talk about next month, we still […]

  13. College Savings are hard to plan | Grumpy Rumblings (of the formerly untenured) Says:

    […] so young– maybe we should be open to funding some graduate school.   It is also true that we have two children, and by the time DC2 is ready for college, we should know how much DC1’s experience ended up […]

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