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jerhot said:   Am I the only one who thinks an education will mean more to my kids if they have to figure out on their own how to pay for it?

I went to cheap in-state school and took out some loans, and yes, it will take me close to 20 years to pay them off. I was also encouraged by my parents to do my best in high school so I could qualify for a merit-based scholarship, which I did.

With all of the information out there about saving for college for your kids, I have only rarely seen information that says save for retirement and for yourself first, and let the kids figure it out for themselves. It will definitely mean more to them if they have some skin in the game.


I am not disagreeing with you. There are many different viewpoints and none of them are right.

There is something about this that is very unfair to your kids. Because colleges make the assumption that you will be paying for their education, your success means that your child will have to pay more for his education.

In other words, if you are successful and make $300,000 a year, your child might have to pay full freight. On the other hand, if you are a bum, your child won't have to pay anything. Your success can make it almost impossible for your hard working, but not brilliant child to be able to afford to go to a good school.

By the way, I am 100% in agreement with "skin in the game". I would like to pay for my children's education, but I firmly believe that they need to earn it. Assuming that I can afford to pay, my plan is to use a reimbursement plan. I expect my children to come up with money for one semester of school. If they do satisfactory, I will reimburse them. If they don't, they are on their own for the next semester. I am happy to pay. I won't pay for children who aren't doing what they should be doing.

ksuwldkat said:   This is all very interesting and potentially useful information. However, is it not also important to consider what types of financial aid are likely to be available? Especially with a shift toward offering loans rather than grants. If you pay off your 3% interest mortgage to be given an aid package that just gives you a 6.8% interest loan, was it worth it? I'd be curious to hear what some of the aid packages being offered are like. For example at Princeton, if you drop your EFC to 0, how much of the aid will come as loans and how much as grants? I remember filling out a FAFSA, and it asked for information that day, so some of the tactics related to taxes would also apply (hold off depositing large checks, make large payments to draw down account size)Princeton and a few other schools offer no loan financial aid. A student whose family makes $75 K or less with reasonable assets will get a Princeton education for about $3,000 per year and owe nothing when he or she graduates. The parents aren't expected to pay anything, but the student is asked to pay a few thousand dollars per year. Considering how much teenagers eat, going to Princeton may cost less than living at home.

BrodyInsurance said:   

By the way, I am 100% in agreement with "skin in the game". I would like to pay for my children's education, but I firmly believe that they need to earn it. Assuming that I can afford to pay, my plan is to use a reimbursement plan. I expect my children to come up with money for one semester of school. If they do satisfactory, I will reimburse them. If they don't, they are on their own for the next semester. I am happy to pay. I won't pay for children who aren't doing what they should be doing.


I totally agree with this point, yet how do I do exactly what you said and be able to have the advantage of "reimbursement" that's tax free (as in a 529 plan)? I have a 3 yr old that I set up a 529 when he was 1. I calculated how much community college would cost in 17 years, and in-state university in 19, using today's amounts along with a 6% per year inflation rate.

If memory serves me right I believe my calculations were around $130K to cover 4 years. Then I determined if I contributed a total of $46,000 over the next 36 months to the 529 plan I will have about $112K when he's 18 yrs old and ready for college.

So like you, I want him to have "skin in the game" - That's exactly what my mother did with me. I paid about 90% and she paid 10% after all was said and done. Yet in 15 years from now how can I expect my son to have $130K unless he starts working at the age of 15 and minimum wage is $100 per hour?

With my 529 plan it's going to "cost" me $46K the way I'm looking at it. (Yes, you can say that I lost out on the growth that money would have had over the years if it was going into my own wallet, but I choose not to look at it that way).

So if his college expenses cost $130K, and I have $112K in the 529, we can figure out between him and I were the difference ($28K) will come from. But how can I also do the "reimbursement plan" as you described since the money in the 529 must be used for education? Also we don't have any other children that will be going to college after this child and we don't want to gift this money to any other family members child. So if my kid flakes out and I don't want to pay for any school expenses can I pull this money out (with some taxes and penalty) and put it back in my own wallet?

I also don't want to see him strapped with $28K in college debt when he gets out of school either.

jimmywalt said:   
I totally agree with this point, yet how do I do exactly what you said and be able to have the advantage of "reimbursement" that's tax free (as in a 529 plan)? I have a 3 yr old that I set up a 529 when he was 1. I calculated how much community college would cost in 17 years, and in-state university in 19, using today's amounts along with a 6% per year inflation rate.

...

So if his college expenses cost $130K, and I have $112K in the 529, we can figure out between him and I were the difference ($28K) will come from. But how can I also do the "reimbursement plan" as you described since the money in the 529 must be used for education? Also we don't have any other children that will be going to college after this child and we don't want to gift this money to any other family members child. So if my kid flakes out and I don't want to pay for any school expenses can I pull this money out (with some taxes and penalty) and put it back in my own wallet?


529 money can be withdrawn for any purpose if one is willing to accept taxes and penalty on the earnings portion if not used for qualified education expenses. If worst case scenario comes up that no 529 money is used for a child's college, you can think of it as sort of a handicapped (10% penalty on earnings) Traditional IRA for retirement.


Something I suggest people consider is using Roth retirement space for college savings if it isn't normally maxed out for retirement. If there is no state deduction for 529 contributions, there should be little difference between a 529 account contribution or a Roth retirement contribution for year to year tax purposes (both after-tax contributions).

The benefit is that Roth money does not need to be withdrawn specifically each year in college, and can be delayed until after graduation (anyone know if Roth IRA return of contribution distributions impact financial aid during college years?). Your child can take subsidized loans and be reimbursed after graduation. And I *think* (hopefully someone else can confirm/add to this) that assets in retirement plans/IRAs are more favorable in financial aid calculations.

There is a good chance a large Roth contribution basis can be built up if savings started early. This means most or all of what you withdraw for your child's college education from a Roth IRA will be tax free and penalty free if still under age 59 1/2, because it would be a return of your contribution basis first. If you happen to be over 59 1/2 when the money is tapped, then the entire amount could be available tax free from a Roth.

BrodyInsurance said:   ksuwldkat said:   This is all very interesting and potentially useful information. However, is it not also important to consider what types of financial aid are likely to be available? Especially with a shift toward offering loans rather than grants. If you pay off your 3% interest mortgage to be given an aid package that just gives you a 6.8% interest loan, was it worth it? I'd be curious to hear what some of the aid packages being offered are like. For example at Princeton, if you drop your EFC to 0, how much of the aid will come as loans and how much as grants? I remember filling out a FAFSA, and it asked for information that day, so some of the tactics related to taxes would also apply (hold off depositing large checks, make large payments to draw down account size)

It's very important to understand what kind of aid is available. That's why one shouldn't pay off their mortgage (or take money out of their house if equity counts) or do anything else for the purpose of aid before they understand the impact. There are different calculators that can be used to help determine this in advance.


How do you find were these calculators are? And from what you said prior to this post, it "sounds" like different colleges count different things toward assets which will affect your EFC. Did I read it wrong?

BrodyInsurance said:   jimmywalt said:   From all this conversation I would guess that A LOT of people cheat on their income taxes as well, uh????

I don't cheat, never have, never will! Cheaters don't win in the long run - no they don't!

Why would I want to STEAL from another student (or many students) who might have ACTUAL needs?

Should I stop paying income taxes, still enjoy the services of the government and let all you foot the bill for me?

Come on guys!!!!


Jimmy, I'm really curious about your viewpoint on this.

Let me give you a real example without any craziness. Everything is identical between you and your neighbor. You both have a 14 year old child and an 18 year old child. You both have 2 529 plans for your children each with $100,000.

The only difference is that the 529 plan for his youngest child is an UTMA/529 while you own the 529 plan for your youngest child.

With this set of facts, you will have to pay $5,600 more than your neighbor every year for school for your oldest child.

Do you believe that your neighbor is cheating? Like you, I would never cheat. In this case, I don't see any cheating. I just see you being an unnecessary sucker.


No I don't have a problem with that. You have to be wise in how you structure your assets. I only have 1 child that will be going to college in 15 years, so the UTMA isn't going to help me, but if I had 2 kids I would do what you said above and save the $5,600.

BrodyInsurance said:
In general, the asset strategies are nothing more than understanding what counts as an asset and what doesn't. I'll use myself as an example projecting my situation into the future. When my oldest is a senior and filling out the FAFSA, I will also have a junior, sophomore, and, freshman in a private H.S. Let's assume that the tuition for each of them will be $25,000 and I have $500,000 sitting in my checking/savings accounts.

Let's just focus on that $500,000. That $500,000 translate to having to pay around $28,000 for college. How do I get rid of this money to lower what I need to pay? There are many ways, but here is one.

1)Put $25,000 into an UTMA for child #2. 2)Put $50,000 into an UTMA for child # 3. 3)Put $75,000 into an UTMA for child #4. This pays for 1, 2, and 3 years of their private school respectively.

After doing that, I only have $350,000 which gives me an EFC (expected family contribution) of $19,600.

If I put $200,000 into my mortgage, I'm down to $150,000 and an EFC of $8,400.

If I then take that other $150,000 into an annuity, I will be down to $0, and an EFC of $0.

Of course, there will be more to my financial situation, but the point is that much of this isn't much more complicated than knowing what is counted and what isn't counted based upon the formula that a school uses.


How did you figure out these $19,600; $8,400; $0 figures? Is it a percentage of the balance that is left?

Thank you.

I totally agree with this point, yet how do I do exactly what you said and be able to have the advantage of "reimbursement" that's tax free (as in a 529 plan)? I have a 3 yr old that I set up a 529 when he was 1. I calculated how much community college would cost in 17 years, and in-state university in 19, using today's amounts along with a 6% per year inflation rate.

If memory serves me right I believe my calculations were around $130K to cover 4 years. Then I determined if I contributed a total of $46,000 over the next 36 months to the 529 plan I will have about $112K when he's 18 yrs old and ready for college.

So like you, I want him to have "skin in the game" - That's exactly what my mother did with me. I paid about 90% and she paid 10% after all was said and done. Yet in 15 years from now how can I expect my son to have $130K unless he starts working at the age of 15 and minimum wage is $100 per hour?

With my 529 plan it's going to "cost" me $46K the way I'm looking at it. (Yes, you can say that I lost out on the growth that money would have had over the years if it was going into my own wallet, but I choose not to look at it that way).

So if his college expenses cost $130K, and I have $112K in the 529, we can figure out between him and I were the difference ($28K) will come from. But how can I also do the "reimbursement plan" as you described since the money in the 529 must be used for education? Also we don't have any other children that will be going to college after this child and we don't want to gift this money to any other family members child. So if my kid flakes out and I don't want to pay for any school expenses can I pull this money out (with some taxes and penalty) and put it back in my own wallet?

I also don't want to see him strapped with $28K in college debt when he gets out of school either.


Money is fungible. A 529 distribution doesn't have to go to the college to be a qualified distribution. A distribution can also be done after the fact. The only requirement is that the year of the expense meets the year of the 529 withdrawal.

So, as an example, if your child's first semester of school costs $20,000 and he pays for it out of pocket and does well in school, at the end of the semester, you can take $20,000 out of the 529 and give it to him. That is a qualified distribution.

The idea of "skin in the game" to me is all about having responsible children. Let me give you two examples.
1)My son is an underachiever. He's smart, but isn't getting great grades. He's on the lazy side. There is no way that I'm fronting the money for college for him. If he can't come up with the money for college, he isn't going. He can go get a job. If he wants to go to college, maybe he'll have to start taking some classes at a community college. When he passes the classes, I will reimburse him the money and he will have money to take more classes.

2)My son is an overachiever. He works very hard and is also an exceptional athlete. During the summers while he is in high school, his soccer skills are giving him the opportunity to be part of a team that requires a great deal of commitment and even some international travel. It is not possible for him to work and play soccer. Personally, I believe that the soccer experience is much more important than the money that he'll earn on a job as a 17 year old.
When it comes time for college, he doesn't have a penny to his name. He has some scholarship offers to play soccer at some smaller schools, but he is truly academically driven. He gets into Harvard. Our family situation is such that he would have to pay full freight which is $80,000 a semester at that point. If he wants to go to Harvard and I can comfortably afford it, I would pay upfront for him. He has earned it. If his grades aren't good enough, I wouldn't continue to pay.

It comes down to the fact that dad's wallet will only open when the child deserves it. It gets deserved based upon past performances and not based upon promises to do better in the future.

jimmywalt said:   BrodyInsurance said:   ksuwldkat said:   This is all very interesting and potentially useful information. However, is it not also important to consider what types of financial aid are likely to be available? Especially with a shift toward offering loans rather than grants. If you pay off your 3% interest mortgage to be given an aid package that just gives you a 6.8% interest loan, was it worth it? I'd be curious to hear what some of the aid packages being offered are like. For example at Princeton, if you drop your EFC to 0, how much of the aid will come as loans and how much as grants? I remember filling out a FAFSA, and it asked for information that day, so some of the tactics related to taxes would also apply (hold off depositing large checks, make large payments to draw down account size)

It's very important to understand what kind of aid is available. That's why one shouldn't pay off their mortgage (or take money out of their house if equity counts) or do anything else for the purpose of aid before they understand the impact. There are different calculators that can be used to help determine this in advance.


How do you find were these calculators are? And from what you said prior to this post, it "sounds" like different colleges count different things toward assets which will affect your EFC. Did I read it wrong?


Until your child is much older, it doesn't make much sense to worry about financial aid calculations. The majority of schools use FAFSA. There are, however, many private schools who don't. If you Google FAFSA, you should be able to find a calculator.

jimmywalt said:   BrodyInsurance said:
In general, the asset strategies are nothing more than understanding what counts as an asset and what doesn't. I'll use myself as an example projecting my situation into the future. When my oldest is a senior and filling out the FAFSA, I will also have a junior, sophomore, and, freshman in a private H.S. Let's assume that the tuition for each of them will be $25,000 and I have $500,000 sitting in my checking/savings accounts.

Let's just focus on that $500,000. That $500,000 translate to having to pay around $28,000 for college. How do I get rid of this money to lower what I need to pay? There are many ways, but here is one.

1)Put $25,000 into an UTMA for child #2. 2)Put $50,000 into an UTMA for child # 3. 3)Put $75,000 into an UTMA for child #4. This pays for 1, 2, and 3 years of their private school respectively.

After doing that, I only have $350,000 which gives me an EFC (expected family contribution) of $19,600.

If I put $200,000 into my mortgage, I'm down to $150,000 and an EFC of $8,400.

If I then take that other $150,000 into an annuity, I will be down to $0, and an EFC of $0.

Of course, there will be more to my financial situation, but the point is that much of this isn't much more complicated than knowing what is counted and what isn't counted based upon the formula that a school uses.


How did you figure out these $19,600; $8,400; $0 figures? Is it a percentage of the balance that is left?

Thank you.


Yes, it is a %. From the asset side of the equation, for FAFSA purposes, parents are expected to spend 5.64% of their counted assets on school. The example above is simply about making counted assets become uncounted assets. It's perfectly legal and moral. No attempt is being made to hide anything or skirt any laws or rules. It's just smart to to take the rules that are given and use them in the way that is most beneficial. We don't make the rules. We just follow them.

BrodyInsurance said:   

2)My son is an overachiever. He works very hard and is also an exceptional athlete. During the summers while he is in high school, his soccer skills are giving him the opportunity to be part of a team that requires a great deal of commitment and even some international travel. It is not possible for him to work and play soccer. Personally, I believe that the soccer experience is much more important than the money that he'll earn on a job as a 17 year old.
When it comes time for college, he doesn't have a penny to his name. He has some scholarship offers to play soccer at some smaller schools, but he is truly academically driven. He gets into Harvard. Our family situation is such that he would have to pay full freight which is $80,000 a semester at that point. If he wants to go to Harvard and I can comfortably afford it, I would pay upfront for him. He has earned it. If his grades aren't good enough, I wouldn't continue to pay.

It comes down to the fact that dad's wallet will only open when the child deserves it. It gets deserved based upon past performances and not based upon promises to do better in the future.


It's funny that you say that about Soccer. I have a 18 yr old step-son with my wife. His father believes in spending every last penny for him to play travel team soccer for the last 10 years. Neither he or his father have ANY work ethic. Fortunately the local community college threw him a little bone of a scholarship to play soccer there this fall. But my math tells me that if his father would have saved all that soccer money (fees, gas, hotels) he would have had at least $20,000 that could have gone toward college.

So how is it that you are saying the soccer experience is much more important than the money he could have earned and most importantly the work ethic (having a boss, learning how to be good with money, etc. etc)? I'm not following that logic but am open to your thoughts?

ryeny3 said:   Princeton and a few other schools offer no loan financial aid. A student whose family makes $75 K or less with reasonable assets will get a Princeton education for about $3,000 per year and owe nothing when he or she graduates. The parents aren't expected to pay anything, but the student is asked to pay a few thousand dollars per year. Considering how much teenagers eat, going to Princeton may cost less than living at home.

This is an extreme example, but people should read and re-read this as every single word is true.

It is less true for other colleges/universities.

It is less true as your HHI goes up and becomes especially untrue after about $150k.

It is less true as your unshielded assets increase beyond $40k-$100k and becomes especially untrue after about $1mm in unshielded assets.

But it is fundamentally, verifiably true.

jimmywalt said:   So how is it that you are saying the soccer experience is much more important than the money he could have earned and most importantly the work ethic (having a boss, learning how to be good with money, etc. etc)? I'm not following that logic but am open to your thoughts?

Yes. When it comes to some of the top schools, it's L-A-M.

Legacy

Athlete

Minority

At some elite schools it is especially difficult to gain admission unless you have been captain of your team, state champion, etc.

jimmywalt said:   I don't cheat, never have, never will! Cheaters don't win in the long run - no they don't!

Just to clarify my previous post, here are some effective strategies that I consider to be cheating:

1. Getting your child diagnosed as ADHD -- when he or she is not -- so as to game the SAT, etc. Or to qualify for some other sort of meaningful qualification

2. Claiming your child is a minority -- when he or she is not -- so as to game the admissions process.

There are other such effective ways of cheating. But I don't want to turn this into a primer on that kind of activity.

A borderline tactic is to donate money, say $50k, to a university research program while your child is in high school on the condition -- often unstated -- that the program include your child on publishable research in time for the college applications process.

Another borderline tactic is to use an equivalent sum -- $50k -- to fund a round-the-world solo sail or similar over-the-top feat of accomplishment so as to have published news articles testifying to your child's accomplishment. Again, with the goal of having that before admissions start.

In each case, the expenditure reduces the assets which will be subject to financial aid while simultaneously increasing the likelihood of getting into a top school.

Yes, it's an ugly, abhorrent system. But hate the game, not the player.

jimmywalt said:   BrodyInsurance said:   

2)My son is an overachiever. He works very hard and is also an exceptional athlete. During the summers while he is in high school, his soccer skills are giving him the opportunity to be part of a team that requires a great deal of commitment and even some international travel. It is not possible for him to work and play soccer. Personally, I believe that the soccer experience is much more important than the money that he'll earn on a job as a 17 year old.
When it comes time for college, he doesn't have a penny to his name. He has some scholarship offers to play soccer at some smaller schools, but he is truly academically driven. He gets into Harvard. Our family situation is such that he would have to pay full freight which is $80,000 a semester at that point. If he wants to go to Harvard and I can comfortably afford it, I would pay upfront for him. He has earned it. If his grades aren't good enough, I wouldn't continue to pay.

It comes down to the fact that dad's wallet will only open when the child deserves it. It gets deserved based upon past performances and not based upon promises to do better in the future.


It's funny that you say that about Soccer. I have a 18 yr old step-son with my wife. His father believes in spending every last penny for him to play travel team soccer for the last 10 years. Neither he or his father have ANY work ethic. Fortunately the local community college threw him a little bone of a scholarship to play soccer there this fall. But my math tells me that if his father would have saved all that soccer money (fees, gas, hotels) he would have had at least $20,000 that could have gone toward college.

So how is it that you are saying the soccer experience is much more important than the money he could have earned and most importantly the work ethic (having a boss, learning how to be good with money, etc. etc)? I'm not following that logic but am open to your thoughts?


Your facts are different than my facts. You are comparing a child with no work ethic to a child with a tremendous work ethic. Your step-son isn't taking his academics seriously. He doesn't deserve to have someone pay for his college. My son, in my example, managed to get himself into Harvard. He doesn't need a teenage job to give him a work ethic. In fact, if his grades weren't very good, he would not have earned the right to play travel soccer. Also, keep in mind, that in this case, his soccer could have paid for his college. I could choose to not pay for Harvard and he could take a soccer scholarship to a different school and could afford to go without dad's help.

It's not about the specific facts and examples. It's still about Dad not being willing to open up his wallet until AFTER the child shows that he deserves it.

Has anyone had success with the Massachusetts 529 plan, it seems like it has a lot more options than the Connecticut one

I live in Mass. Since the state gives no tax breaks, I would not use them (or CT). I use Nevada, but Utah is a good option as well.

MA prepaid plan seemed attractive when I last looked: worst case scenario, you got CPI rate of returns. And no premium to current tuition to buy into the plan. Have these changed?

beatme said:   nk42 said:   How about if we save for college in parents roth ira account instead of 529.. you can take out tax free withdrawal for college. In my state( MA) there is no state tax benefits.

Then you have no Roth IRA left for you own retirement.


I do not get it. you can put the money in ROTH ira through conversion back door( if you don't qualify becos of income limit) and it is the same money that were going to put in 529 plan. I see couple of benefits rather:

1. it is not open/set aside just for kids education. It doesn't get counted on fafsa application.

2. It still grwos tax free and you can takeout as you need and as you feel. it protected from any law suite etc.

3. Lot of investment options?

what is the downside ? i ca not think any ?

nk42 said:   beatme said:   nk42 said:   How about if we save for college in parents roth ira account instead of 529.. you can take out tax free withdrawal for college. In my state( MA) there is no state tax benefits.

Then you have no Roth IRA left for you own retirement.


I do not get it. you can put the money in ROTH ira through conversion back door( if you don't qualify becos of income limit) and it is the same money that were going to put in 529 plan. I see couple of benefits rather:

1. it is not open/set aside just for kids education. It doesn't get counted on fafsa application.

2. It still grwos tax free and you can takeout as you need and as you feel. it protected from any law suite etc.

3. Lot of investment options?

what is the downside ? i ca not think any ?


That is what I am doing except I am using the "backdoor, backdoor Roth". Basically my retirement plan at work allows after tax contributions and in-service withdraws of those to a Roth IRA. This allows me to effectively put more than $5k a year into a Roth. Basically I max out regular 401k contributions. And do more in after-tax contributions. Several times a year I roll those after tax contributions out of my company's 401k into a Roth IRA.

The "problem" with Roth IRAs are they have somewhat low limits per year (unless you can do the trick I am doing) and there are income limits (though you can get around these with a backdoor Roth if you don't have other pre-tax IRAs).

nk42 said:   beatme said:   nk42 said:   How about if we save for college in parents roth ira account instead of 529.. you can take out tax free withdrawal for college. In my state( MA) there is no state tax benefits.

Then you have no Roth IRA left for you own retirement.


I do not get it. you can put the money in ROTH ira through conversion back door( if you don't qualify becos of income limit) and it is the same money that were going to put in 529 plan. I see couple of benefits rather:

1. it is not open/set aside just for kids education. It doesn't get counted on fafsa application.

2. It still grwos tax free and you can takeout as you need and as you feel. it protected from any law suite etc.

3. Lot of investment options?

what is the downside ? i ca not think any ?


Typically, when someone can see the upsides of something, but not the downsides, it means that they don't understand it.

1)In most cases, it is going to turn a tax free investment into a taxable one. The Roth IRA is only going to be tax free if the money isn't removed until age 59 1/2. If the money is removed before age 59 1/2, the gains are taxable. Contributions can be removed first. Because it is being used for education, it will escape the 10% penalty.

2)A Roth IRA doesn't count as an asset for FAFSA purposes. Withdrawals from an IRA will count as income. It does not matter whether this income is taxable or not.

3)Using a Roth means missing out on years or decades of tax free growth.

Brody, is a possible good use of Roth IRA money another case of using it only in the senior year of college after the financial aid calculation has already been made?

bigdaddycincinnati said:   Brody, is a possible good use of Roth IRA money another case of using it only in the senior year of college after the financial aid calculation has already been made?

If a Roth is going to be used, that is certainly a better time to use it. It still changes a tax free investment into a taxable one (if under 59 1/2) while losing years of tax free growth.

BEEFjerKAY said:   ryeny3 said:   Princeton and a few other schools offer no loan financial aid. A student whose family makes $75 K or less with reasonable assets will get a Princeton education for about $3,000 per year and owe nothing when he or she graduates. The parents aren't expected to pay anything, but the student is asked to pay a few thousand dollars per year. Considering how much teenagers eat, going to Princeton may cost less than living at home.

This is an extreme example, but people should read and re-read this as every single word is true.

It is less true for other colleges/universities.

It is less true as your HHI goes up and becomes especially untrue after about $150k.

It is less true as your unshielded assets increase beyond $40k-$100k and becomes especially untrue after about $1mm in unshielded assets.

But it is fundamentally, verifiably true.
The availability of fiancial aid at schools with 11 figure endowments is much greater than that at most schools.. A family with one other child in college applying to Harvard with $300 K income and modest assets might get aid. At a small private school with a modest endowment, the same family might be looked upon as a source of financial aid instead of a beneficiary.

For most families, spending large amounts of money with the goal of receiving a college scholarship is a bad financial investment. Such strategies might make buying lottery tickets look like a valid investment strategy. Many parents don't realize how little money is available and how much competition there is for it. While a D1 football team can have 85 scholarships, D3 teams and Ivy League teams don't give athletic scholarships. Other sports are limited by the NCAA to a small number of scholarships and many schools offer far fewer than the maximum number they are allowed.

I am not trying to discourage anyone from competing in a sport they love, I am merely pointing out the the rewards from doing so are rarely financial. My parents, siblings and I all competed in one or more sports at a fairly high level and all of my children are currently or soon will be college athletes. I have spent an enormous amount of money supporting their training, travel and equipment knowing that they would almost certainly never receive a dime in scholarship money. i enjoyed watching them develop into strong and mostly mature individuals and I believe they learned a lot of skills that will help them in life.

Although my children practice year round, they all had summer jobs every year starting in middle school.

Just to follow-up on the Roth Ira question - with my particular circumstances.
- I am 53
- I have substantial income
- my son graduates hs in 7 years (and a few months)
- it's a stretch but I could consider retiring or taking a break when he graduates - and would do so only because I want to, not to save $ on tuition but If I might anyway might as well make smart decisions
- I have substantial unshielded financial assets to augment retirement savings but could reduce some if i pay off the house (if I thought home equity would remain off limits in calculations)
- intrigued by idea of getting as much as possible of unshielded assets into back door Roth IRA and possibly buying an annuity to shield more
- Buying into a business would also be an option

If I can get additional assets into Roth does it work for me?
Who thinks home equity will stay shielded?
Can I buy into a business or pay off home just before college or do these require the before 8th grade plan mentioned.

I suspect I can't pull this off but want to challenge myself to be smart!

Thanks for the thoughts.

isn't a lot cheaper to stop claiming your kid as a dependent at some point & pretending that his guardian is somebody with a low income?

seems like an easy plan, since just about everybody has a derelict or two in the family.

duckyhood said:   isn't a lot cheaper to stop claiming your kid as a dependent at some point & pretending that his guardian is somebody with a low income?

seems like an easy plan, since just about everybody has a derelict or two in the family.


Not sure if this is still valid, but back in college a buddy of mine floated the idea of getting married to a student friend of the same age, same college, and rooming together at the start of college (prob must be apt life). In practice, this is probably easier for the 2nd year and onward since many dorm year 1. So freshman year is the time to fall in love, get married, and an apt together.

ryeny3 said:   For most families, spending large amounts of money with the goal of receiving a college scholarship is a bad financial investment. Such strategies might make buying lottery tickets look like a valid investment strategy. Many parents don't realize how little money is available and how much competition there is for it. While a D1 football team can have 85 scholarships, D3 teams and Ivy League teams don't give athletic scholarships. Other sports are limited by the NCAA to a small number of scholarships and many schools offer far fewer than the maximum number they are allowed.

I am not trying to discourage anyone from competing in a sport they love, I am merely pointing out the the rewards from doing so are rarely financial. My parents, siblings and I all competed in one or more sports at a fairly high level and all of my children are currently or soon will be college athletes. I have spent an enormous amount of money supporting their training, travel and equipment knowing that they would almost certainly never receive a dime in scholarship money. i enjoyed watching them develop into strong and mostly mature individuals and I believe they learned a lot of skills that will help them in life.

Although my children practice year round, they all had summer jobs every year starting in middle school.


I think that vast majority of us would agree with you. In the example that I gave earlier, I wasn't talking about playing sports instead of working as a way to get a scholarship. I was talking more about how an experience could be more valuable long term than a summer job. I could have just as easily talked about volunteering for the summer in some third world country. In the vast majority of cases, one can certainly both work and play sports in the summer.

Despite what I just said, I realize that my sister was one of those exceptions. During high school, she played on a softball team that traveled a lot and would have made it almost impossible to hold a job. Our folks shelled out some cash for her to make this possible. She ended up with a Division 1 full ride to play ball. Yet, a scholarship wasn't the intention. We didn't even know that there was such a thing as a softball scholarship. If she held a job instead, that would have never happened. Much more importantly, the work ethic that she gained is what allowed her to become a life long success. Sports also allowed her to get into a college that her grades didn't allow.

And of course, for many of us, we could have had our parents pay for private coaches, camps, personal trainers, practiced 10 hours a day had a great work ethic, and if we weren't blessed with enough natural ability, we wouldn't be getting a scholarship.

In terms of the Ivy League, they might not give "athletic scholarships", but that doesn't change reality. A great athlete can gain admittance because of their ability and they won't be paying tuition.

duckyhood said:   isn't a lot cheaper to stop claiming your kid as a dependent at some point & pretending that his guardian is somebody with a low income?

seems like an easy plan, since just about everybody has a derelict or two in the family.


Yes, it would be much cheaper for us to just toss our children out of the house at 18 and let them fend for themselves. Or, do you mean doing it fraudulently and pretending that our children are not dependent?

I don't think that anyone here is talking about doing anything dishonest in terms of aid. Financial aid has rules. Knowing the rules allows people to follow them in the way that makes the most sense for their situation. Unfortunately, if someone doesn't do this, they get penalized for being responsible about education.

Ex. Jim's dad's attitude is "Retirement comes first. We'll get loans, etc. for college." He saves around $300,000 in his 401(k)
John's dad's attitude is "Education is paramount. I need to save enough money." He saves around $300,000 in a 529 plan.
Charlie's dad just likes to spend his money on hookers and blow.

Because John's dad is more responsible in terms of saving specifically for college, over the course of 4 years, he will be expected to pay about $60,000 more than the other two dads.

The game is rigged in favor of doing certain things. Spending money on H&B is the exact same thing as putting money into a retirement plan for FAFSA purposes.

BrodyInsurance said:   ryeny3 said:   For most families, spending large amounts of money with the goal of receiving a college scholarship is a bad financial investment. Such strategies might make buying lottery tickets look like a valid investment strategy. Many parents don't realize how little money is available and how much competition there is for it. While a D1 football team can have 85 scholarships, D3 teams and Ivy League teams don't give athletic scholarships. Other sports are limited by the NCAA to a small number of scholarships and many schools offer far fewer than the maximum number they are allowed.

I am not trying to discourage anyone from competing in a sport they love, I am merely pointing out the the rewards from doing so are rarely financial. My parents, siblings and I all competed in one or more sports at a fairly high level and all of my children are currently or soon will be college athletes. I have spent an enormous amount of money supporting their training, travel and equipment knowing that they would almost certainly never receive a dime in scholarship money. i enjoyed watching them develop into strong and mostly mature individuals and I believe they learned a lot of skills that will help them in life.

Although my children practice year round, they all had summer jobs every year starting in middle school.


I think that vast majority of us would agree with you. In the example that I gave earlier, I wasn't talking about playing sports instead of working as a way to get a scholarship. I was talking more about how an experience could be more valuable long term than a summer job. I could have just as easily talked about volunteering for the summer in some third world country. In the vast majority of cases, one can certainly both work and play sports in the summer.

Despite what I just said, I realize that my sister was one of those exceptions. During high school, she played on a softball team that traveled a lot and would have made it almost impossible to hold a job. Our folks shelled out some cash for her to make this possible. She ended up with a Division 1 full ride to play ball. Yet, a scholarship wasn't the intention. We didn't even know that there was such a thing as a softball scholarship. If she held a job instead, that would have never happened. Much more importantly, the work ethic that she gained is what allowed her to become a life long success. Sports also allowed her to get into a college that her grades didn't allow.

And of course, for many of us, we could have had our parents pay for private coaches, camps, personal trainers, practiced 10 hours a day had a great work ethic, and if we weren't blessed with enough natural ability, we wouldn't be getting a scholarship.

In terms of the Ivy League, they might not give "athletic scholarships", but that doesn't change reality. A great athlete can gain admittance because of their ability and they won't be paying tuition.
i agree with every thing that you just said. If there was a choice between a summer job and their sports, I would have encouraged my children to skip the job. We were fortunate that there was a lot of local competition, so my children only traveled a couple of times a summer. They would workout either on their own or with their teams, go to work and practice again after work on Monday to Friday. Practice or competition on the weekends. Major competition at the end of the summer.

BrodyInsurance said:   duckyhood said:   isn't a lot cheaper to stop claiming your kid as a dependent at some point & pretending that his guardian is somebody with a low income?

seems like an easy plan, since just about everybody has a derelict or two in the family.


Yes, it would be much cheaper for us to just toss our children out of the house at 18 and let them fend for themselves. Or, do you mean doing it fraudulently and pretending that our children are not dependent?


I mean this:

after the college-bound kid finishes middle school, parents "turn over" guardianship to a low-income family member and stop claiming the child as a dependent

the kid then completes HS online, through a free charter school or similar institution, using the low-income guardian's address.

for financial-aid purposes, the child can then report a "low" family income, permitting him to attend college free, irrespective of his parents' actual financial status.

wouldn't this be really easy to pull off?

duckyhood said:   BrodyInsurance said:   duckyhood said:   isn't a lot cheaper to stop claiming your kid as a dependent at some point & pretending that his guardian is somebody with a low income?

seems like an easy plan, since just about everybody has a derelict or two in the family.


Yes, it would be much cheaper for us to just toss our children out of the house at 18 and let them fend for themselves. Or, do you mean doing it fraudulently and pretending that our children are not dependent?


I mean this:

after the college-bound kid finishes middle school, parents "turn over" guardianship to a low-income family member and stop claiming the child as a dependent

the kid then completes HS online, through a free charter school or similar institution, using the low-income guardian's address.

for financial-aid purposes, the child can then report a "low" family income, permitting him to attend college free, irrespective of his parents' actual financial status.

wouldn't this be really easy to pull off?


I don't know if it would be easy, but it sure sounds fraudulent.

This is something to think on for sure.

If you made a high income but thought there was a sliver you may retire pre-aid forms would you still avoid the 529 if you got a state tax (3%) deduction? I already max 401(k) and backdoor roth, and was planning to start pumping 13K per kid to max out the PA deduction (2 kids).

I have about 18K saved so far in the 529's. I don't trust any relatives to park the money with. Both my wife and I had our college paid for by family, so I expect to do the same for my kids.

I see a spreadsheet in my future. . .

duckyhood said:   

I mean this:

after the college-bound kid finishes middle school, parents "turn over" guardianship to a low-income family member and stop claiming the child as a dependent

the kid then completes HS online, through a free charter school or similar institution, using the low-income guardian's address.

for financial-aid purposes, the child can then report a "low" family income, permitting him to attend college free, irrespective of his parents' actual financial status.

wouldn't this be really easy to pull off?


http://studentaid.ed.gov/fafsa/filling-out/dependency


Independent Student

An independent student is one of the following: at least 24 years old, married, a graduate or professional student, a veteran, a member of the armed forces, an orphan, a ward of the court, or someone with legal dependents other than a spouse, an emancipated minor or someone who is homeless or at risk of becoming homeless. Get additional information to determine your dependency status.


Why not just have them get married to and move in with a friend in the same college?

Jahlapenoez said:   duckyhood said:   

I mean this:

after the college-bound kid finishes middle school, parents "turn over" guardianship to a low-income family member and stop claiming the child as a dependent

the kid then completes HS online, through a free charter school or similar institution, using the low-income guardian's address.

for financial-aid purposes, the child can then report a "low" family income, permitting him to attend college free, irrespective of his parents' actual financial status.

wouldn't this be really easy to pull off?


http://studentaid.ed.gov/fafsa/filling-out/dependency


Independent Student

An independent student is one of the following: at least 24 years old, married, a graduate or professional student, a veteran, a member of the armed forces, an orphan, a ward of the court, or someone with legal dependents other than a spouse, an emancipated minor or someone who is homeless or at risk of becoming homeless. Get additional information to determine your dependency status.


Why not just have them get married to and move in with a friend in the same college?


Dependency:

just have your kid say his "dad" is some low-income relative on your (the real dad's) side of the family. that way, if there were an FAFSA audit, the last names would match.

Independency:

marriage: good, but might be hard to find somebody willing to play along

emancipation: looks easy. you & your kid just need to say that you two don't get along & that he has someone else willing to support him (like a grandparent). your child could get emancipated right after finishing 11th grade & do his senior yr. through an online charter school.

Sesq said:   This is something to think on for sure.

If you made a high income but thought there was a sliver you may retire pre-aid forms would you still avoid the 529 if you got a state tax (3%) deduction? I already max 401(k) and backdoor roth, and was planning to start pumping 13K per kid to max out the PA deduction (2 kids).

I have about 18K saved so far in the 529's. I don't trust any relatives to park the money with. Both my wife and I had our college paid for by family, so I expect to do the same for my kids.

I see a spreadsheet in my future. . .


If the kids are young, it doesn't make much sense to do things based upon financial aid considerations.

I think (not positive) that in PA one can use any plan and get the deduction, but there are benefits to using the PA plan. For instance, the Pennsylvania 529 plan is the only one that has creditor protection in the state. It is the only one that is a non-counted asset for Pennsylvania state financial aid. It also has an inheritance tax exclusion, but quite frankly, I don't know what exactly this means. On the federal side, contributions to a 529 plan are treated as a completed gift to the beneficiary. Thus, if the owner dies, it is not in their estate. Does the state of PA not treat this as a completed gift if a non-PA 529 plan is used?

Dependency:

just have your kid say his "dad" is some low-income relative on your (the real dad's) side of the family. that way, if there were an FAFSA audit, the last names would match.



Independency:

marriage: good, but might be hard to find somebody willing to play along

emancipation: looks easy. you & your kid just need to say that you two don't get along & that he has someone else willing to support him (like a grandparent). your child could get emancipated right after finishing 11th grade & do his senior yr. through an online charter school.


I would hope that these are not serious suggestions, but the problem is that they aren't funny enough to be taken any other way. Duckyhood, can we safely assume that you are not a parent?

"Hey kid, go get married. Your mom, your girlfriend, and your priest won't mind once we explain that it is a sham marriage to try to get more financial aid.

"Hey kid, you know how you were looking forward to starting on the basketball team this year and ruling the school with your senior friends, and the prom, and .... well, forget about it. Instead, we are pulling you out of school to try to scam the financial aid system. You need to start pretending that you don't live here anymore and are self supportive."

BrodyInsurance said:   
If the kids are young, it doesn't make much sense to do things based upon financial aid considerations.


I will model it further, but when I thought about it more I think I won't quite be there for early retirement.

I think (not positive) that in PA one can use any plan and get the deduction, but there are benefits to using the PA plan. For instance, the Pennsylvania 529 plan is the only one that has creditor protection in the state. It is the only one that is a non-counted asset for Pennsylvania state financial aid. It also has an inheritance tax exclusion, but quite frankly, I don't know what exactly this means.

You can deduct contributions to other states. My existing accounts are with Utah. I didn't know the creditor protection difference, I will look into that, thanks. I know one of the PA plans uses vanguard funds, so it may be competitive on the cost side. Nor did I know it isn't counted for PA state aid. Very interesting. Not sure we will still be here in 11-14 years, but that would be potentially a bonus.

PA has an inheritance tax separate from the estate tax. The tax is measured when you receive property from some one who died a PA resident, or receive property located in PA from the deceased. Most of the time 529 plans are exempt from inheritance taxes.

Even with an up front tax advantage, in some cases 529s can be inferior in the long run.

Variables include:
1. the amount of tax advantage
2. The number of calendar years you will have children in college
3. the amount of time the money has to be in the 529 to claim the tax credit
etc.

And then there's the whole question of how long to keep the money in the 529. Sometimes it can be useful to put money into a 529, but not keep it there.

For instance, a successful during-college funding strategy in Illinois is to put the money in a 529, then withdraw 10 days later.

Of course, Illinois used to not reclaim the tax credit if you did not use the funds for college. So ymmv.



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