If you think college is expensive today, just think about the costs your child is going to face in the future! Thankfully, you can help them by investing in the right plans at the right time. Today we’re learning all about 529 plans and how they can ease the cost of higher learning.
Saving Money for Your Kid’s College
Episode 126, Nov 20th, 2015
Please be advised, this transcription was performed from a company independent of New Mommy Media, LLC. As such, translation was required which may alter the accuracy of the transcription.
SUNNY GAULT: Forget preschool waiting list or elementary school lotteries. Believe it or not, if you have a child of any age, it’s already time to start worrying about college. How much will college cost in the future? How can you make sure you’re ready to handle the tuition? Today we’re talking about saving money for college. This is Parent Savers.
SUNNY GAULT: Welcome to Parent Savers broadcasting from the Birth Education Center of San Diego. Parent Savers is your online on-the-go support group for parents with infants and toddlers. I am filling in as host. I’m Sunny Gault and our fearless leader Johner is going to join us in just a second and we’ll kind of explain the set-up in just a little bit.
Thanks so much for our loyal listeners who join us every time we release a brand new episode. And for those of you who continue these conversations with us on Facebook and Twitter, we really appreciate it and we love chatting online.
Make sure to check out our Parent Savers apps where you can listen to all of your favourite episodes on the go. If you love listening to Parent Savers each week, we would love for you to tell some more parents about it. I know how parents talk. So next time you’re getting together with another parent, just share that you listen to Parent Savers, that you really like it.
Another step if you want to go further than that is to check us out on iTunes and leave a review because that’s how people find us on iTunes. It’s through our great reviews. We really appreciate those of you who have left a review in the past.
Okay so before we kick off our conversation, we’re going to meet everyone that’s joining us today and I mentioned just a few minutes ago that we have a little bit different set-up. I’m actually the only person that is here in the studio. I feel a little lonely guys. Everybody else is joining us via Skype, via phone so let’s bring in Johner. Hey Johner.
JOHNER RIEHL: Hey I’m here too. You’re taking my job.
SUNNY GAULT: I know dude. So Johner is joining us from home with I don’t know. Your three little kids at home too Johner? They’re at school?
JOHNER RIEHL: There’ll be no little phantom kid noises from my end today.
SUNNY GAULT: Johner is joining us via Skype and Scott Kilian. You guys remember Scott. Scott’s been on the show in the past. Scott is joining us via phone. Hi Scott.
SCOTT KILIAN: Hey Sunny. How are you?
SUNNY GAULT: I’m wonderful. Now I’m so excited to hear your perspective on this. For those of you who have heard Scott on our show in the past, he’s not only a daddy but he’s also a financial planner. So I thought it would be perfect for him to be part of today’s episode. So Scott—for those of you who haven’t met Scott, Scott, why don’t you tell us a little bit about yourself and your family?
SCOTT KILIAN: Yes. Actually as you’ve said Sunny I’m a financial planner. I have been for over 15 years now. I have a 6 year old boy. 6 years old today. If you can you imagine that. It’s his birthday.
JOHNER RIEHL: Oh happy birthday.
SCOTT KILIAN: Yes. It’s just the 3 of us and we’re just living the dream, working and being a family.
SUNNY GAULT: Awesome. Thanks for being with us today Scott. And Mary is joining us on the phone. Mary is from Virginia 529 and we’re going to dive in to 529 plans in just a little bit when we get intoour actual main part of the episode. Mary, tell us a little bit about you and your family.
MARY MORRIS: Sunny thanks. I’m Mary Morris and I’m CEO at Virginia 529. I have 2 grown girls. I think I’m the oldster here in the group. And there are grandchildren on the way but someday maybe. I’ve been through a lot in the past, that you are all going to talk about here in the last few years.
SUNNY GAULT: Awesome. And you guys already know Johner. But Johner, why don’t you just refresh everyone’s memory on how many kiddos you have and your family life?
JOHNER RIEHL: See if I can remember. I’m Johner, normally host the Parent Savers. I have 3 boys, an 8 year old, a 6 year old and a 4 year old and atleast one of us between me and my wife are really concerned about college planning right now. I’m excited to have this conversation to see if this other one of us maybe gets smarter with it.
SUNNY GAULT: Are you going to share which one is more concerned or do we just have to guess or figure it out in the course of the conversation?
JOHNER RIEHL: I think it’s pretty obvious and you’ll be able to figure it out so I’m looking forward to learning more for sure.
SUNNY GAULT: Okay awesome. Thanks everyone for being with us.
MARY MORRIS: Excitement is a good way. That’s a good attitude to go have about it.
SUNNY GAULT: I know right? Save money. That is exciting - Saving money. Alright, we’ll be right back.
SUNNY GAULT: Alright Parent Savers we have a comment from one of our listeners and I love getting mail from you guys. And this is straight out of the Parent Savers mailbag and this comes from Rick in Louisiana. Rick writes—say that five times fast—Rick writes:
“Hey Parent Savers. I can’t tell you how much I appreciate your episode last week and buying and selling your kid’s stuff. We really needed a way to clear out the clutter around our house and we’re just not super big fans of pricelists. So thanks for the additional resources. Also, I have another tip that could help.
My wife always makes friends with couples who have kids a little older and a little younger than our kids. So we’re always getting clothes and toys from the older kids. They no longer need it and likewise, we can pass down the stuff our kids no longer need to couples with younger kids, so creating a little bit of an assembly line there. If you’re not really worried about making money, this is a great option because it takes very little time and effort. Just my 2 cents.
Love listening to this show. Keep up the awesome work.”
And Rick, I think you’re pretty awesome for sending this in. I really do appreciate it. Great tip for other parents out there and if you guys are listening and you’re like “you know what, I got a tip. I’ve got something I’d like to share with Sunny and Johner”. Then please send us an email. You can go through the contact link on our website or if you just want to leave us a voicemail and tell us yourself, you can call 619-866-4775.
SUNNY GAULT: So today we are talking about saving money for college and Mary Morris is joining us. She’s with Virginia 529. Mary thanks for joining us via phone.
MARY MORRIS: It’s great to be with you. Thanks for having me.
SUNNY GAULT: Absolutely. Okay. I’ve kind of a loaded question. But when should parents start worrying about paying for college?
MARY MORRIS: Well as I said, I like the word excited better than worrying. You should start thinking about it right away though. One of the devices that we use for getting people’s attention is the tuition monster. So that’s the kind of big, annoying thing that parents have lurking around. But we talk about ways to tame the tuition monster. And so I think it really is doable and the earlier start thinking about it, and planning and saving, the easier it’s going to be.
SUNNY GAULT: I feel it. You know I’ve got 4 kids of my own and so even in our whole family planning of how many kids we’re going to have, I can’t’ tell you how many times it was brought up: Oh we got to pay for this? We got to pay for this. So the top things that we are really concerned about is: okay, how are we going to pay for college and okay, if we have a girl, how are we going to pay for that wedding? I mean I think those were the biggest things on our list.
Let’s check in with some of our panellists. Johner you have 3 boys. Tell us a little bit about the conversations that you and your wife have had about how do we pay for college for our boys?
JOHNER RIEHL: Well I mean it’s definitely leering out there. And I think our senses from all the anecdotal evidence and parents we talked to that have older kids, the landscape has definitely changed. But I feel like that there’s a struggle these days between just bouncing to save for all the sports leagues and activities and family-faculty organizations or PTAs or whatever and donations that you know, it’s easy to say oh my gosh can we just not even worry about college right now? Maybe it’s me that says that but my wife, “No we really need to say it”. So it’s conversations that we’ve had but it seems like such a distant future that it’s really easy to back burner.
SUNNY GAULT: Yes. Totally. Especially when your kids are so little that you‘re worrying about going to whatever—kindergarten and stuff like that or day care, how do you pay for day care? And I know we’ve done episodes on that on Parent Savers as well. So Scott, I imagine you and your wife finding out you’re pregnant and you’re going, “okay, how do we pay for college?” He’s a financial planner. I imagine this is something that you thought about from the very beginning. Am I wrong?
SCOTT KILIAN: No you’re not wrong. It did come up early on. I think important thing is that it’s all in a matter of context. Just like Johner, I simply identify towhat you’re saying. How are you going to pay for this thing that is right in front of your face versus something that’s 18 years down the road? It seems almost like maybe later we can get to it.
But the reality is that like everybody says, at least that I’ve come in contact with, it’s like a blink of an eye and all of a sudden your kids are stealing your car keys off the table, driving your car and then they’re going to college. And like where did all the time go? Something that we’re really cognizant about and something that we decided to put attention to along with everything else. It’s the way that I feel in my practice and with my family. That is something that if you can articulate your position on college education, then what you do about that should be able to fall in line.
SUNNY GAULT: Right. When we’re talking about college and how much it costs, we know it costs a lot. Even when—and I think everyone here on the call went to college. We even know through our own experiences, even what we went through. It was expensive then so you can project 18, 20 years out and you know these rates seems to be going through the roof. So Mary, can you shed some light on what people should expect to pay for college and what it could go to in the future? Any ideas on that?
MARY MORRIS: So the average today, I’ll point on a few things, depends on if you’re going in state or out of state, or if you go to public school or private school and between that, if you’re in state or out of state. So there’s a really wide range and that’s one of the things that families should think about.
Usually when you read the big numbers, that’s for a private school with post op program. Some of the most famous private schools. They’re sticker shocked right now. They might be 50,000 to 60,000 dollars a year today. While in 18-20 years, that’s going to be a really big number. But a public school, right now the national average for tuition and fees is at $9,500. The total all in cost is somewhere just the south of $20,000 for an in state student. Still a big number. It’s still going to grow.
But it’s a little bit more than you can wrap your head around. And you always have to look at what you’re actually going to pay and that can be different. There are a lot of variations between public and private schools. And then I always tell families now, think about starting in a community college and then moving into the 4 year school later on. Those might run you to the $4,000 a year right now for tuition and fees. It’s a really wide range and families have to figure out what’s going to work for them.
SUNNY GAULT: Okay. So let’s dive into how 529 in plans can help. We actually in our family, we live pretty far away from grandparents and we wanted to find a way that they could contribute because let’s face it, when birthdays come and stuff like that you can only get so many toys. And you’re like okay this really isn’t working out. But you really can help us out by contributing to their college future.
And so when my kids were born, that’s exactly what we did. We set up 529 plans and I know my father in law has it and we do too actually. It automatically comes out of whatever pay check each month, I think. You can allot (x) amount of dollars—do that whenever you want. And it’s not said it and forget it per se because obviously there’s a lot of options and you can switch things around. But give us an idea of the benefits of 529 plans especially using Virginia 529 plans.
MARY MORRIS: Sure and that’s the absolute best way to get going. And again, it can be a small amount when you start and then as your situation changes, maybe you get a promotion, you get a little bit of extra money, you can put more money in in addition to that monthly contribution. And hopefully once a year you will talk to your financial planner and think about what can I do? Can I put a little bit more in? What more can we do? 529 plans are a tax advantage way to save.
529 comes from the section of the internal revenue code that gives us our tax advantages. Every state with the exception of Wyoming and they sort of work together with Colorado has a 529 plan. They are open to participants all around the country. The savings program—two kinds of 529s and we’re really just going to talk about savings plans.
A few states, Virginia is one of them, has prepaid programs but they’re a little bit different animal. They have some residency restrictions and some age restrictions. But the same program—it’s really like any other kind of saving. You can invest usually in mutual funds, the families, the age based revolving portfolios, there are static single strategy portfolios. You know, a lot of different options. Think about a 401K plan where you’ve got a limited suite of options that are helping families steer into what might be some good investment options.
The real kicker for a 529 program is that because of tax advantages, federally and virtually in every state, your contributions grow tax free. You don’t have any taxes while it’s growing which is great. And as long as you use your account for qualified higher education expenses, they’re never taxed.
Such are the only investment where you can do that. Where it grows tax free and is never taxed even on distribution as long as you use it for the intended purpose. And in a number of states also provide tax reductions for state income tax purposes. Here’s where it gets a little bit complicated so I always tell families, look at your state plans first and see what the advantages are. Do you like the investment options? Do you get a state tax advantage or are there other advantages to being in that state’s program?
But also look elsewhere particularly if you don’t feel warm and fuzzy about your state’s plan. A number of states don’t provide the state tax advantage or they don’t have state income taxes. Or they actually allow you to participate in any state’s program and still take the state tax advantages. Take a look at that and look at what kind of investment you’re comfortable with. Look at the fee structure, look at the performance and make a decision as to which state plan is best for you.
But there are absolutely no restrictions in being in one state’s plan versus another. You don’t have to stay with your home state and the plan you have just paid in has absolutely nothing to do with where you can go to school. It’s one of the misperceptions about 529 college savings programs particularly ours. Because we are called Virginia 529, it sounds so Virginia-centric but it’s just happens to be who we are. These are all run by state agencies so that’s what people may not always understand.
That’s part of the federal statute. A state has to sponsor the program. Some states outsource some of the program administration but you’re really working with the state. And I think it’s a great advantage because we spend a lot of time across the country on financial education and outreach and scholarship programs and matching grant programs. Ways to get as many families as possible from a very broad demographic spectrum involved in saving for colleges.
SUNNY GAULT: Okay Johner, you’re up. In talking about 529 plans is this something that you and Christina have talked about? Is this something that you put in motion or where do you stand with all this?
JOHNER RIEHL: Well so, how much do I need to be setting aside every month? That’s what I want to know. I think that’s what it comes down to for a reasonable public education, how much do we need to be saving per kid?
MARY MORRIS: However much you can. Not to be flipped about that but it depends. It really does depend on what your circumstances are and where you are. If you’re just getting started, you do the best you can in many instances. I think your financial planner can help with that.
There are calculators on our website at www.virginia529.com. We have some really good calculators. There are others. I think most state plans have some kind of calculators and you can do a lot of different things. You can figure out the cost of waiting. What is the cost to not do anything? How much do you have to save if you don’t start until the kids are 10?
Let’s say you can put in just a generic. What’s the anticipated average public tuition going to be in the future? There are a lot of ways to play around with that so I would say; absolutely go out. I don’t know where the others are but go to www.virginia529.com and scroll down a little bit and you can find our calculators. You can play a game and see what you think your expected family contribution might be for federal financial aid purposes.
That’s what people do when kids are little. Put in, either just make numbers up. If you’re playing with the calculator, put in your current income or what you hope it will be or whatever. Press the numbers in. put your kids—put their birthdays in and see what the expected tuition is going to be and how much it recommends that you save. You absolutely can figure that out. And again you can look at what a 2 year college will cost or what a 4 year. If you know that you want your kids to go Duke or Stanford, you can put them in and it will do a calculation based on the current cost and extrapolate that into the future.
SCOTT KILIAN: That’s one of the things of mine that you’re saying and for you Johner, when you say how much should I be putting away? Honestly the question is just asked all the time. A question I would want to ask is how much do you want to fund of college? Do you want to do the whole boat? Do you want to do some of it? Part of it is expecting a scholarship or a financial aid or help from parents or grandparents? So you got to have to figure that out first.
But if you are going to decide to put in money to a 529 plan, you can see there are calculators and graphs out there that will show you the benefit of putting it in earlier rather than trying to catch up later. So if you were to put in (x) amount of dollars over the next 5 years, it’s far better than waiting 10 years and try to put more money in later when college is just around the corner because you benefit on compounding of the investments.
SUNNY GAULT: Okay. Thanks so much. When we come back, we’re going to talk more about the Virginia 529 program and getting ready for college tuition. We’ll be right back.
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Take my mommy’s advice and visit www.newmommymedia.com today.
SUNNY GAULT: Alright. Welcome back. Today we are talking about saving money for college with Mary Morris from Virginia 529. Welcome back everybody. So Mary are Virginia 529 plans—they’re not just for undergraduate degrees. There are any restrictions? We say it’s for college but college can mean a lot of different things to different people right?
MARY MORRIS: Well you’re absolutely right. I keep thinking of a better word—post secondary and that’s even worse than just saying college. But no. It can be used for very broad range. They’re very flexible programs. So graduates and undergraduate programs, 2 year colleges, 4 year colleges, a lot of it proprietary or profit colleges, training programs, technical programs.
The basic rule is that it has to be what’s called eligible educational institution. Basically that means if it qualifies for federal financial aid, type it in the system, it’s embedded in that school then it qualifies as a 529 recipient.
It’s such a really broad range. All around the country, there’s some international programs that qualify. It can be used. You can start saving for your kids. You can save for yourself. Adults can use 529 programs. I think it’s great. If you have a habit of saving I want to go back. I need a new credential. I’m in a field that’s going to be obsolete in 10 years so I need to go back to school and get a different credential. You can do that with your 529 account.
You can save for yourself. If your kid doesn’t end up going to school, you can transfer beneficiaries. So we try to be as flexible as possible to provide ways to save for the future really.
SUNNY GAULT: Okay. And I know Virginia 529 has 4 different plans. And one of them is for Virginia residents specifically. So knowing that our listeners might not be in Virginia, let’s talk about the other 3. Give us the highlights of what each of those plans offer.
MARY MORRIS: So there’s three savings program. College Wealth is the easiest. That’s the most conservative. It offers FDIC insured bank savings account through BBMC bank and then through Union Bank which is more of a local Virginia bank although anybody can participate. So that’s the only investment option. It’s really great for kids who are already in college or fresh in college age because that guarantees you’re not going to lose any money and you’re going to get a definite return although it’s pretty low right now.
And then invest—Virginia 529 invest in college America are too, it’s called a mutual fund saving program. It’s more like a 401 K. with College America you have to work with the financial adviser and that’s what’s called our Adviser Program. So you have to go through our financial adviser to get into college America and it provides a full line up of the American funds mutual funds. It’s one of the largest mutual fund families in the country. We have some great options. The fees are relatively low. That program gets a Morning Star Rating of Silver which is really good. I encourage folks to go out. You can read about that program and their rankings.
Our invest program gets that same silver ranking from Morning Star so we’re really pleased about that. That’s our direct program. If you go on to www.viriginia529.com, you can open up an account—an invest account in about 10 minutes all by yourself. You don’t need to use a financial adviser. Different investment options and invest. Lots of different investment managers. Our program really runs all that and provides the options. You just find what works best for your family.
The most popular option in all 529 programs across the country are what are called Age Based Evolving Portfolios. All that means if you start an account for your newborn, you probably want to be a little more aggressive in your investment options. And so it starts with more equities and as child gets older it automatically resets and becomes more conservative.
So you don’t have to worry about that as much and generally people want to make sure to hold on to what’s in there by the time the kids go to college and so we become a little more conservative in the investment strategy so that you’re more likely to have that happen.
SUNNY GAULT: Scott, what kind of advice do you give your clients as far as different states have different packages. I’m sure for someone who doesn’t know a lot about this it could get kind of confusing. What do you usually say to help parents kind of figure out what’s going to work best for them?
SCOTT KILIAN: The first thing is I would look at the state that they’re in and if they’re in a state that offers a deduction then that makes it a very, very strong case for using that state plan. The tax condition is great. If I’m looking at the investments particular, I am a fan of the Age-Based Plan. I think that if you’re doing it yourself, you’re going to be following that same client path anyway. You’re going to be really aggressive upfront and at some point you’re going to turn off the aggressive state and put it into a fixed category so it’s there when you need it.
SUNNY GAULT: So what would be the best way—if someone’s listening to the show and they’re like you know I got to do some research and kind of figure this out, can they literally—to even find out if they have a 529 plan in their state and what that looks like. Would they just Google the name of their state and then 529 or is there a central website?
MARY MORRIS: That’s it. If you want to find your state or any other state, just type in the name of the state and 529 and I guarantee you, your state will come up as well as a bunch of other states. There are two really good websites that are—give you overall comparative advise. The College Savings Plan network is a non-profit organization made up of mostly all states that have 529 programs. And their website is www.collegesavings.org and they have a really nice comparison tool. Depending on what feature is most important to you, you can pick a number of state and you can just run a comparison. You can see all the features and it provides links to every state plan. That’s a really good resource.
Another good resource is www.savingforcollege.com. They’ve been around for a long time. A guy named Joe Hurley started it years ago. He was a financial planner and he said I think I can help families around the country and build a nice business. So he started www.savingforcollege.com. It’s actually been sold. I can’t remember who owns it now but it’s a great site. Has a ton of information. It’s actually broad and has information on financial aid, there are some good articles and things like that and again some information on every state program and some comparative tools.
So those are two really good places to get started along with just typing in your state’s name or Virginia 529. Again, every state’s program gives you a bit of information about 529 saving generally college savings generally and then specifics on their plan.
SUNNY GAULT: Awesome! Wonderful! Mary thanks so much for the information today. We really appreciate having you on this show.
MARY MORRIS: Sure thing.
SUNNY GAULT: Alright. So for those of you who are listening and you are a member of our club, we have some more information coming your way so stay tuned. And for more information on today’s episode including more information about Mary and Virginia 529, you can visit our website and visit the episode page on www.newmommymedia.com.
Detective Damien: Hey Parent Savers. This is Detective Damien Jackson with the Escondido Police Department’s Family Protection Unit and the Internet Crimes Against Children Task Force here in San Diego California. As part of the Escondido Police Department’s ongoing series of community outreach education to help families enhance their personal safety, I’m here today to talk to you about having a second dummy email address.
So you’re walking down the street and a stranger comes up to you and says hey, how’s it going? Can I have your phone number? Would you give it out? Of course not. That’s closely guarded information reserved only for those you want to have it. But oddly enough, so many people give out their personal email addressall over the place and to complete strangers they might not ever intend to do business with.
Most of you probably had the same phone number for many years and the same email address for just as long if not longer. It is not realistic to walk around with 4 different cellphones with different numbers. It’s very easy and beneficial to have a few email addresses that you can use for different purposes. Those are what I call dummy emails.
When a business or service requires an email contact information from you, it’s always handy to have an extra email set up where you can selectively choose where these sources can email you at. So as not to have to clutter up you main email that you use for personal and important affairs or stay connected with family and close friends.
You can also have your dummy email address forwarded to your main email address so that you’re still be able to review them at any time but don’t have to worry of those outside sources having a direct line to your main inbox.
Google is perhaps the best and the most streamlined email provider out there. Best of all, it’s all free and very simple to set up allowing you to manage all your email accounts under one roof and have them all connected with your main email account but without having to disclose your guarded information out to the rest of the world. It’s just another simple measure that you can take to add that extra layer of safety and privacy to you and your family’s personal affairs.
For more information on how you can keep your family safe, visit us on Facebook or Twitter at /escondidopolice. With the Escondido Police Department and San Diego Internet Crimes AgainstChildren Task Force, I’m Detective Damien Jackson reminding you and your family to be smart and be safe.
SUNNY GAULT: That wraps up our show for today. We appreciate you listening to Parent Savers.
Don’t forget to check out our sister shows:
• Preggie Pals for expecting parents
• The Boob Group for moms who breastfeed
• Twin Talks for parents with multiples
• Newbies for everyone doing it for the first time
This is Parent Savers, empowering new parents.
This has been a New Mommy Media production. The information and material contained in this episode are presented for educational purposes only. Statements and opinions expressed in this episode are not necessarily those of New Mommy Media and should not be considered facts. While such information and materials are believed to be accurate, it is not intended to replace or substitute for professional, medical advice or care and should not be used for diagnosing or treating health care problem or disease or prescribing any medications. If you have questions or concerns regarding your physical or mental health or the health of your baby, please seek assistance from a qualified health care provider.
SUNNY GAULT: New Mommy Media is expanding our line-up of shows for new and expecting parents. If you have an idea for a new series, or if you’re a business, or an organization interested in joining our network of shows through a co-branded podcast, visit www.NewMommyMedia.com.
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