Question re: Saving for Kids' College

Hello,
My husband and I are thinking about having kids in the next three to five years and, in my typical worrying fashion, I am already concerned about some of the financial aspects of that. Specifically, my accountant recently told me that when we have kids we should try to save 1000 per month per child for their college starting from when they are infants. Now, I could do that at my present job but I was planning on working part-time when we had a family. My husband will be done with his training in 2-4 years, depending on whether he decides to specialize, but I think that even post-training a big chunk of his income will go to his students loans. Also, he wants to explore reduced hours options when we have a family so we can share childcare. Now, obviously, those of you in residency probably are only saving a little, if anything, for kids' college. But, are those of you who are post-residency able to save like this? I just don't see how when you get as late a start as most physicians do how you can save for retirement, repay loans, meet daily living expenses and save for the kids' college (except for maybe you radiologists out there!). Does anyone have any other plans for funding the kids' college? I guess I am just wondering how people manage or plan - - absent robbing a bank.

[PrincessFiona]

college

I've actually heard different advice about saving for kid's college...We were told to focus first and foremost on our retirement...that there are no loans to pay for the costs that you incur during retirement...but that kids can take out student loans.....So that is kind of where we are at. We did open up a savings account for each child and we try and deposit a little in it each month...not anything close to $1000...actually not even $100 right now. The grandparents all know about the accounts and donate from time-to-time.

I know that we won't have much money there, but hopefully in the next few years we will be able to afford to contribute more...and I'm sure that our children will need to take out student loans just like we did .

$1000/child/month sounds absolutely outrageous to me. That is 12k a year....nearly 200k before the child graduates from college. I have to say that hat money would definatly be better spent in a retirement account for each of you....If college in this country for a bachelor's degree costs 200k by the time my kids are older....we're going back to europe No one can convince me that a bachelor's degree which is worth that kind of investment...man..you'd almost be better off taking the 200k and moving to Mexico

We have been pretty bogged down paying back our training debt and we are two years out of fellowship. Things are going to start to get better now that my husband has made partner...but we will never have $1000/child to pay into a college fun each month 8O

The cost of college is something I worry about too, henry1....hmmmm...

kris

[Rapunzel]

I agree with Kris. $1,000/month/child is really a ludicrous over-estimation of what you need to save for college educations. My husband and I have four children and have discussed how we will help our children when they reach college-age. Neither of us received any financial support from our parents after high school. We fended for ourselves and did fairly well we think. So, we will expect our children to do exactly what we did - get loans and work through school. In our experience the people who have to pay for their education themselves have more of an incentive to do well rather than party. No silver spoons in our family!

I also agree with Kris that the amount of money quoted to you could best serve you as a retirement fund - and leave your children with less of a burden once you enter old age.

Kids are only as expensive as you make them. There are quite a number of things in the US that are touted as "must haves" for children that are simply unnecessary and even counter-productive. My husband and I count shelling out money for your adult children's college studies as one of those unnecessary things.

I think it is very sound advice to fund your own retirement before funding your children's college plans. (Or adequately fund a retirement plan while also saving for college). I think that parents' financial independence during their retirement is a much greater gift than paying for college. For one thing, your retirement savings may do better than expected or as you are older you may have more money allowing you to contribute some to college expenses or help pay down loans. Also, college loans are a much more definible expense -- you should be able to help your children understand how much needs to be taken out and how much the ensuing monthly payment will be. It's much harder to put any kind of dollar figure on helping your parents after they retire.

The figure of $1K per month sounds awfully high to me. As Kris pointed out, this would add up to over $200K by age 18 -- and very importantly doesn't account for the benefits of compounding interest! Investing conservatively and starting at birth, saving like that would allow you to pay for 4 years of an expensive private college and some graduate school after that. Investing conservatively from birth, you could probably save enough for public college with $200 or so per month. (These savings rates include saving while the student is in school). Accountants can give great tax advice but, in my opinion, don't give very good investing or financial planning advice. If this is a really big concern for you, I would find a good financial advisor to talk to about this. There are all sorts of great options for college savings -- 529 plans, custodial accounts, and many others. A few good sources of information on these sorts of things are:
http://www.smartmoney.com
http://www.kiplinger.com
http://www.kiplinger.com/tools/college1.html -- for a specific college savings calculator

[Meenah]

Well, if someone had told me to put that much away I would have fallen off my chair, but now I wish I had. My dh & I have 4 kids between us,one at Harvard, one at Penn State, one just graduated from high school last week and one will be a high school senior in September. I'm ready to rob the bank!!!!!
Luanne

Well, there is no way we are putting that much away for kids school....ever!!

We have been following this general pattern over the last couple years...
-Max out the amount that we can put into IRA's/401K any retirement with a tax advantage
-make sure that you have enough life insurance to cover spouse and self...there are many different paths here- 10xamount that would be made when the physician spouse is making the "real" money, but truthfully the average person will make about $2 million over a lifetime, and that is figuring about $45K/yr....most likely more for a Dr. So you have to tailor this to your own lifestyle.
-make sure that you have some type of disability insurance....
then, for children it was suggested to us that we open Education IRA's...because any $ that you put into it can be used for ANY educational expense. Parochial school, tuition for preschool, books for high school... any educational expense is valid for withdraw. One drawback, you can only put $2000/yr into this account. To me that beats $1000/mth/child!!

Then if you still want to put $ into a college savings funds, a 529 is good, but you can't do $1000/mth/child because limitations on it are only $11K/yr.
Then whatever is left that needs to be paid for college, the kids can pay for!!

Matt,
We try to do the same as best we can. Max out Roth IRA contributions if we can, and when I was working I put in the max 401(k) contribution needed to get all the available employer match. When the employer is matching it is free money!

The life and disability are hard to swallow when we write the check but worth it, I think. The nice thing with those is that once you have a policy they really can't drop you (up to the term of the policy, anyway).

The educational IRAs are a good idea too. I have been reading more about the 529 plans lately and I think they do offer some good options. For one, the earnings are not taxed. We aren't doing that right now but will probably consider it in the future. Matt, I don't think there is a limit to the amount that can be contributed (maybe it varies by state?) but there would be a limit on who the contribution comes from b/c of gift taxes.

Again -- that $1K per month figure is way too high (in my opinion).

You are right Nellie, after the "gift" of $11K/yr then the child would get hit with the gift tax for all over and beyond.

Thanks for the replies everyone. I feel much better. To be fair to my accountant, I did ask him to estimate the cost of a private college twenty-five years from now -- the amount is pretty horrifying. But, even if he said 700 per month, it would still be very difficult to swing.

Rapunzel, I agree with you there is alot of child spoiling in our society- - I am just afraid that if I don't save/contribute, my (future) children won't be able to go to college! Since any college will take our joint income into account, the kids would not be eligible for enough loans to pay tuition at a private school. Though I think this approach could work at a state school - - and I am seriously thinking about making our next move to NC or Michigan or somewhere with great state schools.

I think you are all correct that it is more important to save for retirement, though. But, if I put retirement first, I would probably put education second, and that unfortunately would mean that upgrading to a decent house from our condo might not happen. I would hate to feel like I had bought a house, gone on vacation, etc. at my kid's expense. It just seems that thinking like that could lead to a somewhat miserable quality of life pretty fast . . . . Maybe what is distressing me is that I think our salaries will be such that if we lived in a tiny house and only went on occasional family trips and rarely ate out, etc. we could afford to fund both the education and the retirement and repay dh's loans. But, it would mean living like medical students/residents for life and I am worried I am being selfish in not wanting to do that.