gatrhumpy

iTrader: (1)

So my wife and I have been saving for our kids' education expenses in college since before they were born. Kid #1 has $28,153 in there (college in 2026) and kid #2 has $25,607 in there (college in 2030). I have been talking with my wife to invest in the Florida prepaid, which allows us to pay for a 4 year Florida university plan for each child. Looking at the website, kid #1 is $753 short for a lump-sum payment, and kid #2 is $3,765 short in a lump sum payment, due April 20, 2018. We can easily come up with the money for the guaranteed education. Then I could relax. We are currently investing $125 a month in a mutual fund for each kid, and it's very appetizing that on April 21st, 2018, we no longer have to save for their college tuition expenses (room and board we could come up with that on the fly in nine and 12 years). If they go elsewhere other than a Florida college, they will get the equivalent of what they would have received at a Florida university.

It's frustrating that my wife is not on board. She says that we'll lose the gains if we invest in Florida prepaid (uhh, duuhhh). She also wants to save money for weddings, etc. I told her fine, let's invest $50 a month (instead of $250) and they still will get the education. At the end of 12 years and 16 years, they each will have roughly $10K in their mutual funds for weddings, cars, house down payment, whatever. The other thing is tax implications. Every time we take out money from the mutual fund, we get taxed on it. That's money we lose every time we take money out.

I'm hoping when we talk with our financial advisor that they'll say the same thing: That we'd be stupid not to invest in the Florida Prepaid option. What are the advantages of keeping the money in the mutual funds and losing money every time we need it for school in 9 and 12 years?

Thoughts?

doopstr

If your kids decide that they don't want to goto college, do you get the money back?

gatrhumpy

iTrader: (1)

Everything I put in, yes, but not the gains. I am OK with that. However, my kids will be going to college. There is a HUUUUUUUUUUUUUUUUUGE difference in pay for someone who goes to college vs. someone who does not.

doopstr

The other option is a 529 plan. Tax withdrawals are tax free as long as they are used for education. The only issue is if you got money left over then you pay tax plus a 10% penalty(on the gains) if you withdrawal for non education use. You could hold onto the money in the 529 and put it in your grandkids name to avoid the tax/penalty. There is also some provision that if your kid gets a scholarship you can withdrawal the money tax free but check with your FA on that. If you prepay does that hurt your kids chances of getting scholarship? If they get scholarship do you get your money back?

529 can also be used for room and board. So you could prepay the education now and then put some money in a 529 for room/board/books. I think you can even use 529 for laptop.

I see that as part of the new tax plan that 529 can be used for other private schooling now besides college, but I haven't dug into that.

brian2

so far my thinking has been to remain more flexible with my savings rather than avoiding capital gains some time in the future.

If I was in FL with all the different options they have, I would probably have to take advantage to hedge against the rising cost of education.

What does this lump sum payment get you?

gatrhumpy

iTrader: (1)

A guaranteed four year education (tuition, expenses, fees etc. but not room and board) at a Florida state university (most expensive option).

Pros:
1. Guaranteed education at 4 yr Florida university
2. If kids go elsewhere, money can be used at other universities. Max payout is limited to what they would have paid for a Florida university.
3. No capital gains taxes to pay each time I want to take money out of our mutual funds to pay for education expenses. Less paperwork.
4. Hedges against rising cost of education.
5. Mutual fund could lose money.
6. If proceed forward, can stop investing in kids' education if I wanted to. Extra $1000 a month in our pockets to do other things.

Cons:
1. Don't get to keep gains in Florida Prepaid investment plan. So what?
2. Mutual funds could out-perform the Florida Prepaid Investment Plans. So what?

gatrhumpy

iTrader: (1)

if my kids are blessed enough to get a scholarship, we would get the money back we put into it, no tax implications. We don't get to keep the gains.

brian2

my advice:

put your foot down

or hide it, and take whatever the consequences are at a later date.

thoiboi

Gatr, I can't see your kids NOT going to college.. You're a smart dude (at least you play one on the Internet), I'm sure the wife is smart too (else you probably wouldn't have married her); it sounds like a safe bet! Not having to pay into it and get $1K extra for a while could mean a nice rainy day fund or vacation fund!

gatrhumpy

iTrader: (1)

We already have a nice emergency fund and a rainy day fund. This would help bolster both, or at least do more things with money. Trips, vacations, etc.

thoiboi

gatrhumpy

iTrader: (1)

My wife is pondering trying to get rid of the Traverse. Problem is I want to keep it and drive it until the wheels fall off. Which, BTW, we just bought new wheels, so that'll be a while!

thoiboi

wheels would fall off if the LBJ failed too

or axles..

gatrhumpy

iTrader: (1)

I'm trying to SAAAAAAAAAAAAVE money, not place it into another outgoing bucket!

KaMLuNg

iTrader: (5)

i'm still trying to understand how the 'if your kid doesn't go to a florida school' work...

so if you kid decides to come to NYU... and it would have costed $20k/yr in florida... will they give you $20k to put towards NYU tuition? and then you come up with the difference? what's your plan for the potential difference? keep that mutual fund going?

brian2

:lol: I would tell my kid, tough shit, you're going to a FL school.

oo7spy

My parents told me that. Go in-state or find your own funding.

thoiboi

get rid of both kids


use college money to go on vacations

profit.

gatrhumpy

iTrader: (1)

Student loans I guess. I want my kids to pay into their education, not get a free ride from me. If they do elsewhere, then that is their choice. But they have to know that they have to come up with the difference. Having the kids buy into their education changes things for them for the better.

gatrhumpy

iTrader: (1)

I'll sell them to you for $34.50 each.

oo7spy

To be honest, I didn’t pay a dime of my tuition. My “fund” ran out by the end of my second year. My mom picked up tuition, and I picked up living on my own. By the end of college I believe the only thing she still assisted me with was half of my comprehensive car insurance premium.

thoiboi

DO I LOOK LIKE I'M MADE OF MONEY?!?!

oo7spy

I’ll pay you to take mine!

BreezyTL

iTrader: (8)

Damn, wish my parents gave me money for my schooling... still paying out the ass for the next 3-4 years!


I do agree that you should have the kids pay for a portion so they see it is their money being spent on their education. They may take it more serious seeing they could be wasting their own hard earned money.

thoiboi

yeah.. my parents couldn't afford to pay for me either