Do you have a college trust set up for your kids?
My children are young still, but I've been thinking about college expenses for many years now, wanting to both stash some money away each year to help me from panicking if one of them says "hey, Dad, I've been accepted into Harvard!" or "Yes, Dad, the London School of Economics looks like my best bet."
Each of which will be inevitably followed by...
"You can pay for me to go there, right, Daddy-ums?"
What I don't want to do is freeze, panic, gasp, feel a thumping in my head and faint. No, much preferable would be to be able to say "no worries, sweetheart, we've got plenty enough in the bank to cover your tuition and basic expenses!"
The question is, how do you best set this up for your children nowadays?
Originally we set up fairly complicated trusts with my now-ex and I set up as trustees and some crazy 75-page legal document setting things up. Now that we're divorced, however, those trusts need to be recreated anyway.
But my question is: recreated as what?
Apparently there are a bunch of different choices now, more than just the blind "set up a new trust" approach.
Linda says she did a bit of research and found out that the two main options are:
• An educational IRA. It has a $2000/yr max per account. The money grows tax deferred and money comes out tax free if it's used for educational purposes.
• A 529 Plan. No $$ limit/yr. Money grows tax deferred and comes out tax free if used for educ. purposes. If one child doesn't use all or any, you can transfer the remaining money to other child/children.
Both sound interesting, but what I really want to do is set up a separate trust for each child that has some constraints associated with it: they can use it for educational expenses as long as they keep a certain GPA, then whatever's left once they're done with college is paid out annually over a specific period of time.
I do have a good trust attorney lined up, but before I talk with her, I'm just curious to canvas other parents and find out what you've set up or are setting up. So what are you doing to plan for your children's college expenses?
Posted by Dave Taylor at April 30, 2009 9:00 PM
My wife and I have setup 529 plans for all three of our children.
My husband and I began savings accounts for both of our girls when they were a few months old. Our goal was to have $100 for every month of their ages, and so far we are ahead of schedule. We have just included it in our monthly budget.
The reason we chose regular savings accounts instead of "college" savings accounts is because if something happens to either child and they cannot go to college, we would not be limited on how the money could then be used (ie for education only). We could use the money to pay medical expenses or whatever is needed. Also, we wanted to be free to save more than the yearly limits if we chose, and we wanted the freedom to buy CDs at higher interest rates than the savings account rates. We don't have any regulations set aside for yearly pymt amounts if our girls don't go to college, but we are the "controlling party" for the accounts until each child reaches 18. We expect that if we notice any behavior that indicates irresponsibility, we will transfer the money out of the accounts BEFORE they reach legal age to take control of them.
We homeschool and currently expect our now 11-year-old to graduate high school at 16. Then we expect that her first experiences with college will be at a local community college so that she can get some experience without having to leave home. With this experience under her belt, she can decide if she wants to go to a 4-year university, private college, or some other choice.
I hope that all of this made sense and that my ramblings are helpful.
I'd recommend going with a 529 plan
While not answering the question directly(or at all). My wife and I (both college grads) are thinking more along the lines of college has to be something our kids want to do because there is something that they can learn there and nowhere else as opposed to going to college because its the thing to do. To that end if they do decide to go, it will be from a money market account that will be the kids' to use.
