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. Â It has a $2000/yr max per account. Â The money grows tax deferred and money comes out tax free if it’s used for educational purposes.
• A 529 Plan. Â No $$ limit/yr. Â Money grows tax deferred and comes out tax free if used for educ. purposes. Â 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?