Color of Money Live: How to plan college savings

Oct 25, 2018

Send in your questions to Washington Post nationally syndicated personal finance columnist Michelle Singletary.

This week, Michelle is joined by Mark Kantrowitz, Publisher and Vice President of Research for

“Knowledge isn’t power. The right knowledge is power.”

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So glad you could join me today. Lots going on. 

As a reminder, I have a guest today. Mark Kantrowitz from is here to take your questions about 529 plans. He's also amazingly brilliant about college financial aid question so take advantage of his presence!

Let's get started.

Good morning Michelle In a previous column about mortgage payoff you mentioned condo fees was the reason you would not buy another condo. Can you expand on that statement. I am considering downsizing to a condo in retirement and would like more detail on why you would not buy another condo.


Related: Yes, you should pay off your mortgage before retiring.

There are a number of reasons I wouldn't buy a condo but keep in mind this is about my preferences and may not apply to you.

-- I didn't like the rising condo fees. 

-- I had a hard time selling because a high percentage of the condo owners were not current on their condo fees.

-- At my condo complex we had a number of assessments for improvements - some I agreed with, others I didn't

-- I didn't like people living above me. 

-- It can be hard to sell if too many owners in the complex are renting their units. 

I have been supporting my disabled daughter and her four children since a divorce a few years back. Their father's child support payments are going to be falling off as they gain majority. I have 529 accounts for all of them and the first one is in a nearby community college which is just fine for her. I've checked the college and their estimate of Room and Board is $16,000 a year. That would be a great help to me but what are the implications of that in her future applications for financial aid when she transfers to a regular four year school.


Related: The average 529 college savings account hits a record high. But it’s still not enough.

$16,000 is a bit high for room and board. According to the College Board's annual Trends in College Pricing publication, the average cost of room and board was $11,140 to $12,680 in 2018-19. 

Remember that room and board is a qualified expense for 529 plans only if the student is enrolled on at least a half-time basis.

Note also that if a 529 plan is owned by anybody other than the student or the parent, it is not reported as an asset on the Free Application for Federal Student Aid (FAFSA), but distributions count as untaxed income to the beneficiary. Untaxed income can reduce aid eligibility by as much as half of the distribution amount. It may be better to change the account owner to the parent or to rollover a year's worth of funds to a parent-owned 529 plan at a time. However, if the funds remain in a grandparent-owned 529 plan, they will not affect aid eligibility on/after January 1 of the sophomore year in college, assuming that the student will graduate in four years, since the FAFSA is on a prior-prior year system.

If you don't have enough money to spread around to help the grandkids, I would strongly suggest you have the kids commute rather than stay on campus. Yes, it can be a great experience but if there isn't enough money it's not worth borrowing for room and board.

I bought a ticket for fun, since it's only a couple bucks, and my husband and I had one day of imagining what we'd do with the money if we won it. At first, it was a fun experiment, but we quickly realized it would probably be pretty awful! I read the story here in WaPo about the WV man who won and how greed basically ripped apart the whole town where he lived. I imagined all the demands from family and "friends." We'd have to move and get security. We'd probably lose anonymity and freedom. And I'd constantly have to be paranoid that people were only interested in me because of the money. And I ended up glad I didn't win. I know we all need money to get by in this world, but the scripture is right--that love of money will tear us apart.


Related: You didn’t win the Mega Millions? Good.

The thing is a lot of the lottery winners who end up broke or in some cases swindled (and dead) had some issues long before they won the money. As you say, it's not the money. It's the backstories and the issues that make having that much cash suddenly a tragic thing.

I love your chats, Michelle! I had one question this week: for those planning on having children in the next few years, what is the best way to figure out how much to save in a 529 given the (rapidly) rising cost of a college education and potential inflation for associated living costs and needed tech (computer, etc.)? And how to break out the cost into a monthly amount to contribute? Thanks!


Related: How we sent our children to college debt-free

Families should aim to save about one third of future college costs. Like any major expense, the cost will be spread out over time, with one third from past income (savings), one third from current income, and one third from future income (loans).

Since college costs increase by about a factor of three over any 17-year period, and 3 x 1/3 = 1, that suggests that your college savings goal should be the full cost of a college education the year the child was born. 

You probably can't predict the specific college a child will enroll in 17 years from now. But, you can probably predict the type of college: in-state public 4-year, out-of-state public 4-year and private 4-year college.

Based on current college costs, to save one third of future college costs, you should save $250/month from birth for an in-state public college for a child born this year, $450/month for a child who will enroll in an out-of-state public 4-year college, and $550 a month for a child who will enroll in a private non-profit 4-year college. 

We did pretty much what Mark suggested. We first used a college cost calculator over at Vanguard. We selected saving based on an in-state school. Except for some lump sum payments for our eldest child (because we didn't start until she was about 4 or 5 years old) we invested $250 a month for 18 years (actually we have kept contributing even while they are in school). With investment returns we have just enough for 4 years at MD schools for all of them plus they can stay on campus. 

We have NO loans. And we would not get any loans. 

If we hadn't saved enough or went through a period where the market was down for an extended time the plan was for them to go to community college for 2 years and then transfer to a 4-year university. 

Equities are in apparent free fall. I won't need retirement funds for at least a dozen years. So yesterday I moved my rollover IRA completely out of bonds to buy a broad market fund while the buying is good. Gains and losses are all hypothetical anyway until we actually pull money out, right?


Related: How to handle a day of big stock market losses

Right. You only lock in losses when you sell. But I can understand if some folks are in a panic if they are closer to retirement. I can't say I'm not concerned but my husband and I are already talking about looking at our investments to see if we need to make any changes. But we won't make moves out of fear. 

And here's something I want to throw in. Your investments are just one part of getting ready for retirement.

You should be looking at how to cut costs, downsize and pay off all your debts. Do that and even if your retirement portfolio is down you can whether a downturn in the markets because you've got other bases covered. 

HI Michelle - a few columns ago, amid the market turmoil, you wrote that you rest easier because you've saved enough to know your children will go to college debt free. How do you measure that? Private or public college tuition? Prepaid plans? Something else? Thanks for sharing.

To determine whether you are on-track to saving one third of future college costs, multiply the child's age by $3,000 for a child who will enroll at an in-state public 4-year college, $5,000 for an out-of-state public 4-year college, and $7,000 for a private non-profit 4-year college. If your total savings are at least this much, you are on track to saving one third of college costs, and should continue to save at your current rate. Otherwise, you might want to increase the amount you save each month or make a lump sum contribution equal to the difference to catch up.

As to how to save, I strongly recommend using a 529 college savings plan. 529 plans provide the best mix of tax and financial aid advantages for saving for college. You can find tools to help you choose a 529 plan at (Hint: Use a direct-sold plan with an age-based asset allocation. Look first at your own state's plan if your state offers a state income tax deduction on contributions. Otherwise, look at state plans that charge the lowest fees.)

In an earlier answer I put a link to how we are putting all three of our children through college without any debt. 

1. We started early. The younger two weren't even walking.

2. We were consistent. Every month for now 20,22, 23 years

3. We chose an age-based portfolio in three 529 plans (0ne each for the three kids). This means the money is invested more aggressively the younger they are and as they get closer to college the portfolio becomes more conservative because you need to withdraw money.

4. We managed our children's expectations from the time they understood what college was. The deal was they could apply to any school. But they had to get enough free money to put with ours so that no debt was used. For the most part that meant in-state schools. And this is what happened. They all are attending schools in Maryland. The same applies to graduate school. We pay but they have to go in-state and live at home. (We allowed our oldest to live in graduate housing for one year but it was eating up the money too fast so she's commuting now.) Lesson learned. The other two will commute from the start if they choose to go to graduate school.

This is not really a question, more of an observation. I've been out of work for a couple of months, and I've been treating it like a trial run for early retirement. I'm not even 60 yet, so SS and Medicare are not available to me. What I've found is that having more free time makes me want to spend more money than I anticipated. Unless I plan to be a hermit, lunches, movies, travel, etc. costs money. Also, the projects that I want to do around my home, like new floors, renovate a bathroom, etc. require an outlay of cash at the beginning of my retirement that I hadn't considered. The cost of health insurance under COBRA is outrageous, (but at least I can pay the premiums from my HSA). For those who think they won't need so much money in retirement, because they're frugal (like me), please give that a LOT more thought. I've spent this time off looking for a fee-only financial planner to do a retirement plan for me. I have an initial consultation with one today. Wish me luck!


Related: An early retirement is doable. Here’s how.

Wishing you luck. And you are so right. My husband and I are taking a hard look at our expenses and desires. We had optimistically thought we would buy a winter home in Fla. and be snowbirds -Maryland for spring, summer and fall and Fla. for winter. 

But because we want to pay cash for a home in retirement, we just can't do that. It would take up too much of our savings. So looking at other ways to get away for the winter months. 

It's all about thinking things through and really assessing how you will spend your money. 

Michelle, lately I've been hearing that the old "you need $1 million to retire" has been updated to $2 million. Whether it's true or not, I've always wondered if that number, whatever it is, is for a couple or a single person?


Related: Do you need $5 million to retire early? Suze Orman says so. But ‘FIRE’ devotees say no.

What you need is a very individual & couple thing. 

You have to look at so much to see what number is right for you. Go to and do the ballpark retirement calculator. Then hop over to AARP and do their retirement calculator, which has a nice feature for couples. 

But to put things in perspective my grandmother retired with a small pension, Social Security and just $20,000 in the bank. 

She lived about 20 years in retirement and died with $20,000 in the bank. 

Are contributions to grandkids 529 tax deductible in Virginia? Who is the owner - the child or me the grandparent?

Contributions to a Virginia 529 plan are tax deductible up to $4,000 per year for a couple, $2,000 for a single filer. However, there is no contribution limit for contributors who are age 70 or older. Note that the taxpayer must be the owner of the 529 plan account (or the spouse of the owner) to claim the state income tax deduction. 

Note that a grandparent-owned 529 plan can have negative consequences for the student's eligibility for need-based financial aid. As much as half of the distribution from a grandparent-owned 529 plan will reduce aid eligibility. There are workarounds, such as waiting until after January 1 of the child's sophomore year in college to take a distribution (assuming the child will graduate in four years), or rolling over a year's worth of funds to a parent-owned 529 plan, or changing the account owner to the parent.

Also, please keep in mind folks that a lot of financial aid is in the form of loans. So if you're thinking I won't save for my kid or grandkid because aid may be impacted just keep this in mind. 

Err on the side of saving as much as you can. 

You don't have to post this, but I just want to say thank you for all your advice through these chats. You are the reason why I am such a saver! I've been trying to get my husband to read your chats and columns. Hopefully he picks them up someday, but in the meantime at least he lets me take the lead on financial planning.

Thank you!

Michelle, My husband and I are both Feds, and we're each one of the TSP millionaires. We did it by living w/i our means, and maxxing out the contributions, having fairly aggressive TSP portfolios (60-70% in stocks), and basically leaving it alone. We didn't borrow against it to buy a house or make home improvements. We've stayed in the same home for 17+ years and refinanced to make improvements, but kept that amount under our home's market value. We have 3-4 more years of service left, and will keep maxxing out the savings. We made TSP savings a priority, as well as 529s for our son's college. Finally, we've been blessed with exceedingly good health and a decent amount of luck (small college loan debt 25 year ago, not like today's students; and good timing on individual townhouse sales for the house's down payment). Keep the advice coming, Happy Fed

Millionaires in the house!!!!

What happens if your child gets a scholarship? How else can the money be used?

A scholarship reduces the qualified expenses that can justify a tax-free distribution from a 529 plan. However, if you take a non-qualified distribution from the 529 plan, the portion that is up to the amount of the scholarship will not be subject to the 10% tax penalty for a non-qualified distribution. The non-qualified distribution will still be subject to ordinary income taxes at the beneficiary's rate.

If you have leftover money in a 529 plan after the student graduates, there are several options:

  • Leave the money in the 529 plan and don't use it. There is no requirement that 529 plan money must be used by a particular date or when the beneficiary reaches a particular age.
  • Change the beneficiary to a sibling of the beneficiary and use the money for the sibling's education. You can even change the beneficiary to yourself for your own education.
  • Use the money for the beneficiary's graduate school education.
  • Use the money for continuing education - there is no requirement that the beneficiary be seeking a degree or certificate.
  • Take a non-qualified distribution.

Our eldest had some money leftover over because she got a huge scholarship. We are using the money -- all of it -- to cover her graduate school education. 

I spend about $70,000 a year supporting my divorce and disabled daughter and her four children. The eldest one is now in community college with says Room and Board is $16,000 per year. Can I use 529 money to reduce my burden?

Room and board is considered a qualified distribution from a 529 plan if the student is enrolled at least half-time in college. Qualified distributions are tax-free.

Whether a distribution from a 529 plan can count as part of the financial settlement of a divorce depends on the details of the financial settlement and who owns the 529 plan. For example, a financial settlement might provide for child support but not college support, in which case the 529 plan distribution might not satisfy the child support obligation. On the other hand, if the financial settlement provides for college support, a distribution from a 529 plan might satisfy the requirement for college support. Also, if the 529 plan is owned by the child's custodial parent, it will not count as a payment from the non-custodial parent, since it is not owned by the non-custodial parent. 

Note that a distribution from a 529 plan that is owned by a non-custodial parent will be treated the same as a distribution from a grandparent-owned 529 plan, reducing eligibility for need-based aid by as much as half of the distribution amount. Thus, it is best if the 529 plan change account ownership to the custodial parent as part of the financial settlement. Otherwise, the non-custodial parent could offer to change the account owner of the 529 plan in exchange for a reduction in the college support obligation.

Sorry if this is a double-submission --- Hi Michelle - Thanks for your columns and chats and hope your foot is getting better! My husband and I are wondering if we should pay more toward our mortgage. We hope to retire in about 7 years and want to be mortgage-free in retirement, but we also expect to move from our current home. I know you advocate paying off a mortgage before retirement, but I think you've also said that it might not make sense if you are moving. Does it make sense to pay down our mortgage anyway, so that we would net a larger amount in a sale? I think paying down the mortgage would get us a better return than any other short-term savings (CDs, savings, bonds) given our time horizon. Does that make sense? We are fortunate to be able to max out our retirements and have emergency and life happens funds (and thanks for your continued encouragement for that). Thank you!

Given that you know you aren't going to stay in the home I'm not sure it's worth paying more since you can't be sure where housing prices will be when are you are ready to sell. 

However, if you  pay off the home early you save on interest charges. 

Since you have so many other bases covered -- retirement, emergency, fund, I might opt to continue to pay down the mortgage for the guarantee return on the interest charges.

But I would also talk to a realtor and look at how home prices have been moving in your area. 

I have a 3 and 4 year old, right now I have a direct debit to both MD529 accounts in the fund that distributes the money for you, I want to manage the funds myself but don't know how, please advise.

529 plans allow investors to pick investments from a limited set of portfolios. Most 529 plans offer options that include at least one age-based asset allocation portfolio, which starts off with an aggressive mix of investments when the child is young and gradually switches to a more conservative mix of investments as college approaches. Most plans also offer a U.S. stock market index fund (e.g., a total stock market fund and/or a S&P 500 fund), a bond fund, a real estate fund and a foreign stock market index. You can specify how to split the money you've invested in the 529 plan among the fund options they offer. You can change the mix of investments twice a year. 

You are not otherwise able to specify the individual investments -- you cannot invest in individual stocks, for example, or pick a mutual fund that is not on the list offered by the 529 plan.

For most families, an age-based asset allocation is the best option. About two-thirds of families are in age-based asset allocations. 

Most advisors say that in retirement you will need an income roughly equal to what you earn now. Your work-related expenses will go down, but your basic living expenses won't change much, and some expenses will go up. So the first question to ask about how much you need to retire is "How much are you making now?"

Very true. But keep in mind you control the numbers. You can scale back and downsize. 

My husband and I don't plan on living on 100% of what we earn now. That's too much and too straining of our retirement savings. 

However, it's probably not going to be 50%.

One big factor. Get rid of your mortgage or greatly reduce your housing and that will help make your retirement savings last longer.

Hi Michelle, Long-time reader of your column: I would say you were my gateway drug to the FIRE movement long before there was Mr. Money Moustache or a wider FIRE movement. In any case, you gave a nice summary in your column of the debate with Suze Orman, but you didn't give your own view. Do you think retiring early in the context of FIRE is wise? [I am personally planning to be financially independent, but not to "retire".]

I thought I did make the point that I like the idea of people saying and working to live on less so they can be happier. 

So, I am a fan of FIRE BUT devotees have to be careful to point out that many of them are still working and earning money. I think that was Suze's point. If you are going to see and stop but have another 30 years to go, you could run out of money. 

The topic seems to come up frequently about people in their 50's and 60's who lose their jobs and can't find another. I've been laid off 3 times since I was 50 (I'm now 65). After the second one, I was unemployed for more than 6 months when I dumbed-down my resume and applied for administrative assistant positions (I was a project manager before). It helps that I'm a woman. I was able to spin it that I was looking for a less stressful position at my age, and my new employer was happy to have someone with experience in that line of work. And I like the administrative work: less stress, and I get to go home at 5 o'clock. So downsizing your job can be a good thing. I make less money, but I have health insurance and can pay my bills.

Two words: Age discrimination! 

But you make some good points about rolling with the punches. 

Michelle, I long-term boyfriend he’s getting ready to mostly move in with myself and my three-year-old son. Obviously there are lots of things to discuss but I was curious as far as finances what are your top must do. He is maintaining his apartment and subletting 3/4 of it to a friend for at least a few months so it will be a slow process. I own the house he will be moving into. We have openly discussed our individual finances in the past. Which portion of the household and board child expenses would it make sense to share? For background I get very minimal support from my ex and I can pay everything on my own

I'm a momma so I would discourage this plan of moving in. But you didn't ask me that, did you? 

So if you still plan to do this here's what I recommend

-- Be crystal clear about the money. You are roommates at this point. No shared bank accounts -- at all. 

-- Put together a rental agreement with an out at certain points for you should this not work out. I would even suggest a month-to-month rental agreement. Depending on where you live it's hard to get someone out of your home once they've moved in.

-- Split the general costs of living by 50%. He's renting space in your home. Period. He doesn't get any equity because you are roommates. State that very clearly and in writing. Get married and different conversation. Be clear about this especially since you have a child. He pays half of what it cost for the mortgage. Or, because he's still maintaining his apartment you could negotiate how much rent he pays until he gets out of that lease. But it is rent.

-- Split the cost of the other household expenses, water, electricity, food, etc. just like you would with a roommate.

-- He is not responsible for nor should he be for any childcare expenses. That's on you the mom and the child's father. (I'm hope you are doing everything you can to get the full support you deserve). The same goes for discipline. That's your job. 

-- If repairs need to be made talk about how he might help if he wants. But generally you are responsible for all repairs because it's your home and you're the landlord in this case. 

I know this all sounds tough and very business like but do it to prevent arguments later.

I'm expecting my first child later this year. A relative has extremely generously offered to put $15K/ year into a Vanguard 529 account for my child. My question is, since they are being so generous, should I discourage other family members from contributing to a 529 account and is there another less restrictive vehicle for them to give if they want? I know that this is a good problem to have, but I would like to use the funds provided for my child wisely.

Congratulations on having a generous relative. 

The annual gift tax exclusion is currently $15,000 contributor and per beneficiary ($30,000 for a couple giving jointly). Nothing stops other family members from also giving to your child's 529 plan.

Note that 529 plans have aggregate contribution limits. In 2018, the limits range from $235,000 to $520,000, depending on the state. Once the account balance reaches these limits, no further contributions will be accepted, although the account will continue to appreciate in value. 

529 plans have the least restrictive definition of qualified higher education expenses. 

If your other relatives want to give to a savings account that is not restricted to educational expenses, one option is to contribute to a Roth IRA. So long as the student doesn't touch the money in a Roth IRA until after graduation, it won't affect their eligibility for need-based financial aid. That will give them a head start on saving for retirement. They will also have the option of taking a tax-free return of contributions to pay down student loan debt after graduation. However, annual contributions are limited to $5,500 or income, whichever is less.

Keep in mind to contribute to a ROTH the child has to have earned income. I do like the idea that you could hope another savings account and if people ask -- only if they ask -- you could put the money there. 

And this is definitely a good problem to have.

While your child is a full time student...can you use 529 funds for sororities and fraternities?

If the student is enrolled on at least a half-time basis, 529 plan money can be used tax-free to pay for room and board. Room and board includes the costs of living in a sorority or fraternity.

We have several nieces and nephews and wonder what is the best way to contribute to college/vocational as they are growing up. Can these funds be left an inheritance as it is quite possible by the time one or more of the children reach college age one or both of us will have passed.?

You have two main options. One is to contribute the money now to a parent-owned 529 plan. You can give up to the annual gift tax exclusion ($15,000) or twice that for a couple giving jointly without incurring gift taxes or using up part of your lifetime gift tax exclusion. 529 plans have a special feature called 5-year gift tax averaging, sometimes called superfunding, which treats larger amounts as though they occur over a 5-year period. This lets you contribute a lump sum of $75,000 (single) or $150,000 (joint) without incurring gift taxes. 

The other approach is to set up a testamentary bequest as part of your will which contributes the money to a parent-owned 529 plan for each niece and nephew upon your death, or, if the niece or nephew has already graduated from college, gives the money to them in cash to help them pay down their student loans. 

We have two teens, one in high school and one in college. The one in college is attending overseas, and that institution does not accept 529 funds. So our plan is to change the beneficiary on that account to the younger teen, whose list of potential colleges do accept 529 funds. Are there any downsides to doing this now? If it makes any difference, we are unlikely to qualify for any need-based aid because we have saved so much. I am not complaining, but we just don't want to inadvertently make a foolish decision that hurts our younger teen in some way. Thanks!

If a college is eligible to receive Title IV federal student aid, 529 plan distributions to pay for qualified expenses at that college are tax-free. Approximately 400 foreign institutions are eligible for Title IV federal student aid. (These colleges have a federal school code.) So, check whether the college has a federal school code before deciding whether to change the beneficiary. It is possible that the foreign college is eligible, even if they don't accept direct payments of funds. In that case, you would have the distribution paid to you and you would pay the college.

Otherwise, changing the beneficiary from one child to another is a good solution. Doing so will not affect the child's financial aid, since the 529 plan would have counted as a parent asset regardless. 

We were thinking of starting 529 plans for the grandchildren but just found out that their parents have already done so. Should we start our own plans or contribute to the existing ones?

You can contribute to any 529 plan, such as a parent-owned 529 plan. You do not have to be the account owner to make a contribution to a 529 plan. 

The only possible issue is that 11 states require the contributor to be the account owner (or spouse) in order to claim the state income tax deduction on contributions to the state's 529 plan. These states are Iowa, Maryland, Missouri, Montana, Nebraska, New York, Rhode Island, Utah, Vermont, Virginia, and Washington DC. 

My child is graduating in 2 years, and while we've saved money for college, I'm wondering if it's worth starting a 529 plan now, and doing a bulk contribution. It would only be 2 years before we would start drawing against it.

While there are unlikely to be much appreciation in just two years, every dollar you save is a dollar less you'll have to borrow. 

Hi Michelle - I agree that students should make use of community colleges to save money and that's what my boys did. I have often wondered, though, why there aren't 4-year colleges with the community college cost structure? What is so different that costs so much more?

Community colleges are a good option for students who are interested in an Associate's degree or certificate. Some fields, like electricians or HVAC techs, can earn very good money after graduating from community college.

But, if the goal is to obtain a Bachelor's degree, students who take a detour through a community college may miss their destination.

Among students who intend to obtain a Bachelor's degree, only a fifth of those who start at a community college obtain a Bachelor's degree within six years, compared with two-thirds of students who start off at a 4-year college. 

As to the cost structure, it partly has to do with the nonresidential nature of community colleges, partly due to faculty who do not have PhDs, partly due to greater reliance on part-time faculty, and partly due to coursework that focuses more on practical skills than more advanced theory.

Mark makes some great points. But I would also offer that many students don't finish community college for a number of reasons. 

Money. They are often older with children and other responsibilities. Many stop early and transfer to a 4-year university. 

But if your child is committed and you stay on top of him and her going the route of a community college is a great way to save on the cost of college.

It just takes a team effort. And some mind changes.

So often people refer to community college as the 13th grade. Or they see it as less than because other kids are going to 4-year universities. But many community colleges are trying to change that image and rightfully so. 

Do you remember those freshman courses? No reason your kid can't knock those course out at community college and save you a boat load of money.

I love the idea of FIRE and people doing what they want for a long period of time. I am too afraid of long term medical costs and not have access to the best available insurance. One illness could easily wipe out $500,000 nest egg. As a federal employee, I am very happy with my insurance options and plan to take them into retirement.

People who focus on FIRE often overlook the cost of college for their children when planning for early retirement. It is unrealistic to expect the children to pay for college entirely on their own. We just published an article about FIRE and saving for college.

You make a great case and Mark so glad you made that point as well. 

I think another column/newsletter is in order for these two points exactly! 

My daughter is super is excited to head off to college next year and join a sorority. I have heard rumors that sororities can very expensive...can you use 529 funds to cover these extra expenses?

529 plan money can be used to cover sorority expenses if the student is enrolled on at least a half-time basis.

Howdy. am a devoted aunt. How can I best help with college costs? don't want to hurt their financial aid profile because I don't know whether I can help for more than one year or so. a 529? $$ to parents?

If you contribute to a 529 plan that is owned by the student or the student's parent, it will receive favorable financial aid treatment, as compared with a 529 plan owned by anybody else. If the 529 plan is owned by the student or the student's parent, it reduces aid eligibility by at most 5.64% of the asset value. If the 529 plan is owned by anybody else, it can reduce aid eligibility by as much as 50% of the distribution amount. 

But if either child is admitted to a highly-ranked graduate program elsewhere, and chooses to accept loans rather than decline the offer, surely you cannot prohibit them and/or require they commute: each is an adult competent to make their own financial decisions (with future consequences). BTW: my spouse and I ended up with $148,000 in loans for our doctoral programs (we also each received substantial scholarship aid during the decade or so enrolled). All loans are fully paid off and we have no other debt. No regrets at all.

Oh but surely I can and WILL stop them if I can.

But I won't have to. Our kids have grown up knowing debt is bad, evil a monkey on your back. So I'm not concerned this will EVER be an issue. When our eldest was applying to graduate schools she looked at "highly-ranked" graduate schools out of state. On her own, because we raised her to think this way, she decide it was too much money. She decided she did not want to have six-figure debt especially because her field of study -- therapy/social work -- would not net her a salary to service such debt. 

I'm glad you have no regrets. But my kids have already indicated they will not get loans for graduate school. 

Understanding the tax benefits of 529 plans, is it prudent to not put all of your eggs in one basket? I would not like to find out that I had "oversaved" in a 529, so what other investments might be worth considering for a parent saving for college costs?

Very few families oversave in 529 plans, despite the high aggregate limits.

If you end up saving too much, you can always take a non-qualified distribution. While this will be subject to ordinary income taxes, it will be at the beneficiary's rate, and the appreciation from investing the state income tax deduction will often exceed the 10% tax penalty on non-qualified distributions, even with recapture of the tax deduction.

Of course, in some circumstances, the capital gains from investing in stocks with a buy and hold strategy may yield less of a tax bite.

We started 529s for two kids when the younger one was born, putting $75 per month into each. About 10 years ago, thanks to a small windfall, we started VA prepaid accounts to pay for 4 years of tuition. Our goal was to be able to pay for tuition, books, and modest living expenses with kids covering some food, entertainment, clothing and extras with work earnings. Older kid is a junior at a VA public school and is on track to use up his money, maybe a little bit early. Younger is a HS junior. Since I'm an older parent and hope to retire or shift to PT before younger one graduates, I'm so glad that paying for college is off my worry list. BTW, when I attended a public college in CA in the '80s, I could pay tuition and all other expenses with a PT job during the year and FT in the summers. No loans. No way is that possible today.

Yup, no way!

We've found that in retirement we spend far less on wardrobe (including dry-cleaning), eating out, gas for the car (and only need one vehicle now).

Good points. 

Would your guest like to talk about the broader issue of why college has become so expensive? There was a time when some public university systems were tuition-free, and most were cheap enough that any kid could work his way through school with summer jobs and maybe working some shifts in the cafeteria or library. Even the cost of private schools has accelerated far beyond the rate of inflation. There are a lot of factors, but one is the cutback in public spending for education, and another is the availability of college loans. If it was harder to pay for college with borrowed money, maybe colleges would be compelled to make some adjustments.

Cuts in government support of postsecondary education on a per-student, inflation adjusted basis are the primary cause of public college tuition inflation. For decades, the burden of paying for college has shifted from the federal and state governments to the families. But, family income has been flat since the year 2000. This forces families to either shift enrollment patterns to cheaper colleges (from private to public and from 4-year to 2-year) or to borrow more (student loans are the only form of aid that has any degree of elasticity). 


College costs also increase at a faster rate than the consumer price index because they have a more expensive mix of expenses, including faculty/staff salaries and benefits, facility costs, equipment costs, energy costs and financial aid.

If it were harder to pay for college with borrowed money, more colleges would fail financially and be forced to close or merge with other colleges each year.  

What a great discussion today. And so sorry if we didn't get to your question. But Mark has agreed to answer many of the leftovers offline. I'll publish the answers either in my column on newsletter (please subscribe).

Thanks for joining me today and see you next week!

Michelle, Thank you for answering my question, very helpful! I am definitely fighting to get the most child support allowed for my child. Marriage is in the cards long-term with the boyfriend as well (already discussing and planning on pre-marital relationship counseling, possibly even starting that shortly after the move-in thing) The rest of it is a great blueprint. thank you again!

Sorry, wanted to post this response to the move-in question. Glad you received the advice well. 

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Michelle Singletary
Michelle Singletary writes the nationally syndicated personal finance column, "The Color of Money," which appears in The Post on Wednesday and Sunday and is carried in more than 120 newspapers.

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Mark Kantrowitz
Mark is the publisher and vice president of research for
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