How do you save for college, what should you plan for and WHEN should you start saving for your kids for college? Today, financial planner Joel Cundick (and father to many teens) will come on and talk to us about what we can be doing no matter our income level today.
Today’s guest is Joel Cundick, he works at Savant Wealth Management.
Big thanks to our sponsor Family Routines — if you’re looking to make the day to day routines easier, jump in that course to let me help you smooth out those days, so you can handle the unexpected (which you likely already expect).
In this episode
WHEN you should start to save for your kid’s college fund
How to balance your own retirement vs college savings
The benefits of opening a 529 (savingforcollege.com)
How grandparents can gift money
Having the conversation for your kids
What the 529 can be used for (and what if they don’t go to college)
What we did to save for college
Other things that might interest you
Producer: Drew Erickson
Check out my other parenting podcasts:
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[00:00:00.180] – Hilary Erickson
Hey, guys, welcome back to the Pulling Curls Podcast. Today on Episode 102, we are talking about college financial planning. Now don’t go all ostrich on me, which is what I did when I heard about this, when I had little kids. Let’s just learn about it. There’s some good tips in this one. Let’s untangle it.
[00:00:28.400] – Hilary Erickson
Hi, I’m Hilary Erickson, the curly head behind the Pulling Curls Podcast, where we untangle pregnancy, parenting, home and even travel. We know there’s no right answer for every family, but hopefully we can spark some ideas that will work for yours. Life’s tangled just like my hair.
[00:00:51.370] – Hilary Erickson
Kay guys, before we get started, just a reminder to leave me a review! Reviews are how I get seen somehow, I don’t know, there’s like magic in a review, so create some magic by leaving me a review.
[00:01:01.360] – Hilary Erickson
OK. Today’s guest is one of my favorites in the world, but don’t tell him I said so. Hopefully he doesn’t ever listen to this. But he is a financial planner in the Maryland area. He has lots of good advice. He’s a dad to four. I want to introduce you to my friend and cousin, Joel Cundick.
[00:01:25.000] – Hilary Erickson
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[00:02:02.620] – Hilary Erickson
Hey, Joel! Welcome to the Pulling Curls Podcast.
[00:02:04.930] – Joel Cundick
Hi, Hilary, glad to be with you.
[00:02:06.820] – Hilary Erickson
Yeah, this is so exciting. So Joel is my cousin and thinks he’s smart about money.
[00:02:13.860] – Joel Cundick
I think you actually know something about this topic, like most of the things that you talk about.
[00:02:19.350] – Hilary Erickson
You mean like I think I know things about this?
[00:02:22.090] – Joel Cundick
No, no. I don’t know anything about the other things that you discussed. So.
[00:02:26.080] – Hilary Erickson
Yeah. So we’re going to talk about discharge in pregnancy today with Joel.
[00:02:34.760] – Joel Cundick
Love to go get my wife.
[00:02:36.280] – Hilary Erickson
He’s turning so red. It’s so fun. All right. So today we’re talking about we’re getting into school time. We’re talking about financial planning for college. I ignored this for a really long time because we just didn’t have any money. So what is the point where you’re at, where a person should be financially before you’re really thinking about opening college funds for your kids?
[00:02:55.720] – Joel Cundick
Well, that’s the reality for many families, is that if you just don’t have money for it, the number one priority has got to be retirement. That’s got to be the goal that gets funded first. And so once retirement is getting properly funded, I mean, that’s to the point of 10 to 15 percent of their income. If they’re in their 20s, if they’re starting that in their 30s, that really needs to be more than 15 to 20 percent of their income size.
[00:03:16.790] – Joel Cundick
So retirement is the number one goal. The saying is you can get a loan for college, you cannot get a loan for retirement. So if families are looking to say, well, when can I do this? They have to first make sure they’re covering their retirement goals.
[00:03:32.420] – Hilary Erickson
OK, so is that 10 percent of pretax or after tax. Like, take home income?
[00:03:37.930] – Joel Cundick
Pretax is fine if they’re starting their twenties, really, 10 percent is enough to be beating that retirement goal that you just want to be making sure. And all of these long term goals, the number one benefit is the growth opportunity. Right. Getting the money in early and giving it time to grow is the most powerful part of it. So what you want to do is make sure, for example, a company has the 401K offering and they give you a match.
[00:04:02.770] – Joel Cundick
Well, my goodness, you’ve got to make sure you maximize at least that match, preferably put in 10 percent if you’re starting your 20, 15 percent if you’re early thirties, late thirties, definitely more like 15 to 20 percent. But sometimes families are having kids right in the middle of all that you’re under like that. I was like that in our family. And just realistically looking at, well, how much can I put to this? You could say you could take the argument of, well, let’s just put five hundred dollars a year to this.
[00:04:27.460] – Joel Cundick
We know that we don’t have much, but we want to put something to it. So let’s give it a placeholder, because if you wait until things are comfortable, newsflash, things are never going to be comfortable, right? If you’re never going to get to the point where money is just like, oh, great, we can put it to whatever we want.
[00:04:41.710] – Hilary Erickson
That is not the abundance mindset you should have.
[00:04:44.770] – Joel Cundick
Well, I guess it’s thinking about abundance early on and say, well, we don’t have much, but we can put a little. Right?
[00:04:52.950] – Hilary Erickson
[00:04:53.950] – Joel Cundick
And so the vehicle you don’t want to put into, though, is a vehicle that gets you the maximum tax benefit. And the five twenty nine is that vehicle for college funding. Think of a 529 like a Roth IRA, but for college. You don’t get a tax benefit when you put the money in, there can be a small state income tax benefit depending on the state that you’re located at.
[00:05:15.760] – Joel Cundick
If you open the 529 with your home state, but you’re allowed to open the 529 in whatever state you want. Savingforcollege.com is a great website to look at to compare 529 plans. You get it into the 529, the benefit, the number one benefit of that plan is tax free growth. So you want to make sure you don’t build it and then put it in a CD. You build it and then put it aggressively in stocks to get that maximum growth over whatever time period you have until college.
[00:05:43.490] – Hilary Erickson
Yeah, although we, right when the pandemic started, Connor was like, how aggressive is our stock in my life to my mom? Because I don’t need to lose the money I’m planning on for tuition in the next two years that he’ll graduate next year. So we put it real conservative.
[00:05:56.900] – Joel Cundick
That’s the other side of this is when you fund it initially, you’re doing it for tax free growth and you want to maximize the growth. But time horizon for me as a financial advisor is the top determinant of how you allocate. And when a goal has years until it is going to happen, you invest aggressively at stocks. There’s yet to be the last seventy five years, a 10 year time period where a stock-oriented portfolio has returned positive. So you want to get the benefit of those stocks.
[00:06:23.890] – Joel Cundick
Once a goldo moves into like the three to five year range, that’s when we start looking at dialing it back. And for college purposes, you dial back aggressively. For retirement, it’s going to be a 30 years of spent. Right. So there’s you want to do a much slower dial back about risk. College as a hopefully only a four year expense. You want to dial back aggressively and starting, like I say, three to five years before they go to school.
[00:06:47.320] – Hilary Erickson
Yeah. So probably when they hit high school.
[00:06:49.120] – Joel Cundick
Around that time is when you want to evaluate it. But last year would have been a classic example. Someone had a freshman in high school and March 20, 20 hits. You do not want to dial back the allocation in your 529 in March of twenty twenty. Now, April, twenty twenty one, very appropriate time to dial back the 529 markets are at all time highs. I know that I need the money.
[00:07:08.720] – Joel Cundick
It’s coming in the next three, four years. Let’s dial this back. Let’s get this more towards cash. And I’d say definitely what college expenses are two years away. So by the time they’re 16, freshman year should be a cash.
[00:07:20.350] – Hilary Erickson
OK, so you don’t you wouldn’t keep anything in the invested, not one.
[00:07:24.200] – Joel Cundick
It’s two years away. If it’s two years away, I’d love that portion to cash and some of these plans will do it automatically. This is another option that you can use. Some state five twenty nines have what are called target date funds, where they’ll do the investment allocation for you automatically. They’ll say, OK, you’re putting it into a college. Twenty, twenty four funds. Well, they’re going to build into it. Here’s the target allocation for twenty twenty one will be this for twenty twenty two.
[00:07:49.430] – Joel Cundick
It’ll be this, it will glide path itself for you. I don’t tend to like those that much because they do a long slow glide path towards more conservative here. I’d rather just say leave it in stocks. If you’re putting it in for a child who’s one year old and they’ve got seventeen years of college, I don’t want to slow glide path reducing stocks. I want in stocks for the first, like I say, 12 to 14 years of it.
[00:08:12.290] – Joel Cundick
And then we’re going to start dialing it back now and we can do that manually. But if you just want to kind of go with the easy, set it and forget it solution, then you use a target date funds within the 529 plan if your state offers.
[00:08:23.750] – Hilary Erickson
We did that and ours offers an aggressive or moderate or less whatever the word for less aggressive conservative you can like pick which of those of the target fund you want. So we switch Conner to conservative.
[00:08:36.500] – Joel Cundick
Very appropriate as it gets closer.
[00:08:38.920] – Hilary Erickson
Yeah. Because I also didn’t have the bandwidth to like pick stocks for my kids every month, every time I stuck in.
[00:08:45.080] – Joel Cundick
And this is not something you would want to change every month. think of of college saving like any actually goal. It’s helpful if families can think of this like a pension manager and maybe they don’t even know what a pension manager would think. But but let me tell you what a pension manager would think. That you invest for the objective you don’t invest. Based on today’s Wall Street Journal headlines, you don’t click on Yahoo! Finance. See, some article says investors should and go over to your five twenty nine and make chaotic adjustments.
[00:09:11.340] – Joel Cundick
Right. A lot of those articles are written to get clicks and views, not to give good strategic long term advice. So we’re investing for a goal. We invested in an equity portfolio. And if you’re five twenty nine, that’s like I’m Maryland. Maryland has what’s called a global equity index portfolio. And that’s what I’ll tell clients to go in for the first twelve years or so of their child’s life. And then you dial it back to more conservative stuff from there.
[00:09:37.040] – Hilary Erickson
Now, you worked with pretty rich people, all kinds.
[00:09:40.460] – Joel Cundick
I have I have clients with a couple of hundred thousand dollars and clients with twenty five dollars million.
[00:09:45.470] – Hilary Erickson
Undocumented migrant workers are coming to joel. You have mostly well-off people, right, because poor people don’t afford you. Like me.
[00:09:56.090] – Joel Cundick
I’ll be open to conversation any time.
[00:09:59.600] – Hilary Erickson
But like, how are these people? OK, so, Joel, the the clientele that you have, which is kind of probably upper middle class with that what you describe, I’d say that was one of the phrases we use as a middle class billionaire. Right. People who are saving toward that, they’re just average people who are doing a great job saving.
[00:10:18.740] – Hilary Erickson
OK, when would you average most of them start a college fund for their kids? Are they starting it at birth?
[00:10:24.050] – Joel Cundick
The best time to start the college fund is at birth. And honestly, the best time to fund it is then. It’s funded aggressively. That and some of the families I work with, they are not affording college, but they have grandparents who are interested in doing it and have grandparents are interested. There’s all kinds of options. A grandparent and I’ll start at the far end of things. Right. Let’s say grandma, grandpa, plenty of money and have said we want to help out with grandkids and we just don’t know how well you can front load of five twenty nine with seventy five thousand dollars and that would constitute five years of gifting from the grandparents.
[00:10:56.930] – Joel Cundick
They’re allowed to give fifteen thousand dollars per year without any tax consequences. And for five twenty nine they can use five years of gifts all at once in a current year. So you can do seventy five thousand dollars. And that would basically cover any kind of education expense that the child’s going to have if they decide to go for your private. That is a lot of money. Yeah. So that’s one end of the spectrum. Right. And then I’ve got my clients who say, hey, look, grandma, grandpa are not interested.
[00:11:21.530] – Joel Cundick
They’ve already funded my college. They’ve said these kids are on their own. So if you’re looking to be able to cover in-state tuition for your child, I would start at around four thousand dollars a year. If you want to be able to cover the full in-state tuition for your child, I do around four thousand dollars a year.
[00:11:37.280] – Hilary Erickson
You mean contribute four thousand dollars a year? Contribute because what are you aiming for, for basic college education?
[00:11:44.000] – Joel Cundick
Well, the difficulty is for the investments. I’d like them to earn about eight percent per year for the first decade or so. Right. And that’s going to get me a double off of what I put at the very beginning. But I know while the investments are hopefully inflating, college costs are inflating, too. I’d like to say that that is going to end. We’ve seen certainly some trends towards not near as great of college inflation. I mean, we were reaching a breaking point, I think, as a country of saying enough, we can’t grow college costs at five percent per year indefinitely.
[00:12:13.290] – Joel Cundick
Eventually, only the uber wealthy will be able to afford college. So hopefully that flows. But college costs inflate at the same time. I’m targeting somewhere around about one hundred twenty to one hundred forty thousand dollars in that plan. By the time the kid goes to college, if we’re putting in four thousand dollars a year for 18 years. Oh, that’s a lot of money, Joel. I will be really transparent. So I’ll give you people my kids do not get that much money to go to college.
[00:12:36.930] – Hilary Erickson
They get like a little nest egg and then they get to work and Chipotle the rest of their lives.
[00:12:40.920] – Joel Cundick
And I think that’s fine. I didn’t get that much money to go to college. My kids are not getting that money to go to college. So I’m just kind of setting the bandwidth. I have clients look, I’ve got all all varieties of clients who say, look, I paid for college myself. It taught me a lot of lessons. I do not want to fund college for my children. I’ve got clients who said I want to give them ten thousand dollars when they turn 18.
[00:13:01.710] – Joel Cundick
They can use it as they choose to use it if they want it to use it towards college grades. I’ve got other parents who say I want to cover half of in-state tuition for four years and others that say I want to cover housing, but I want my kid to cover the tuition because I want them to be incentivized to get good grades so they could get a scholarship to cover their part if they want to. And then I’ve got parents that just say, hey, I just want to cover it all wherever they want to go four years, in-state, out-of-state, private, whatever, and graduate degree.
[00:13:28.530] – Joel Cundick
I want it all there at the five two nine. So I’ve really seen many versions of funding college. I think what’s important actually for your listeners, most important for this conversation is have the dialog with your significant other. Talk about what you are planning to do, because there’s a lot of couples I talk with where the kids are 15 and they have never talked about what their thoughts are with college. And that’s too late, honestly, to do any kind of bold planning.
[00:13:52.350] – Joel Cundick
And maybe there wouldn’t have been funds earlier, maybe there would have been. But I know what we have early conversations. We get on the same page as a couple as to what we want to do for college. Then we can do a better job planning for it.
[00:14:03.570] – Hilary Erickson
Yeah, I really agree with that one because I think a lot of times you come in with separate ideas, like my parents paid everything, my parents didn’t pay much, my parents paid tuition and they’d throw me a twenty every. So but I also went to a church school and it was super, super cheap, like my kids. I’m like, well, if you go there, it’s you don’t have money, right?
[00:14:23.550] – Joel Cundick
Well, and that can set the expectations a little bit skewed. Right. Sometimes where parents went to a very inexpensive school, their expectation should be for their kids. We want you to go to an inexpensive school. And there could be pressures applied in that regard. If it’s the first school to live life a certain way that we start bundling college and lifestyle choices together, it could get very messy. So I just I think it’s good for couples to be on the same page as the children get older.
[00:14:50.340] – Joel Cundick
I really think it’s important to involve the child once they reach high school age. I have friends and family who their parents did not talk about how college was going to be covered until summer after senior year. And that just puts the child in a very uncertain place, certainly well in advance of where the child is looking at where they want to go to school. There should have been a conversation between mom, dad, and child to say, we love you, we care about you.
[00:15:12.090] – Joel Cundick
We brought you into this world. We’ve given you all these things growing up and then from there branched out in different directions. College is not a part of that. That’s not an expression of love. It’s a choice we’re making to not cover your school. It’s not because we don’t love you. We know that you have friends who your parents, their parents are going to be covering everything. But we just want to talk to you about this right now.
[00:15:28.710] – Joel Cundick
It probably would be a good idea for you to get jobs through high school to save some money because college is going to be expensive, but we’re not going to be covering it or all the way to the other end of the spectrum. We’re going to cover everything. Don’t think that every parent should cover everything. Don’t talk to your friends about this as if it’s a right. It’s something that we’ve decided to do for you. And so plan on that.
[00:15:48.090] – Joel Cundick
You can prepare yourself for any school that you want to go to because this is what we want to do for you. So it’s a very different conversation set that you have depending on your family’s decisions and values related to post-secondary education. But you want to be open and up front with the child.
[00:16:02.850] – Hilary Erickson
So what happens if that kid doesn’t go to college?
[00:16:05.730] – Joel Cundick
Good question. So well, for the college funding, what you have to be mindful of is that the five twenty nine can only be used for education. It grows tax free. But if you take the money out of the 529 and spend it on anything else other than education, I guess I should define what education is there. It’s tuition. It’s housing if they are full time student, but not housing. If they’re less than a full time student and include a computer includes books.
[00:16:30.690] – Joel Cundick
But tuition can be very broad category. They decide to go to cosmetology school. It works. They decide to get an apprenticeship to become a plumber. You can use a 529 for those things. You know, they decide to get continuing education of some kind. I have to do that for my certified financial planner designation. I would be able to use money from a 529 for that. The other thing that you can think of is if you have multiple children, you can retitle a 529 to the name of one of your other kids.
[00:16:55.440] – Joel Cundick
It doesn’t have to all go towards the kid that you initially named. And if if the kids. Don’t end up using it, just say, well, I don’t want to take it out. I don’t need it and I don’t want to pay taxes and penalties to take it out, I will just leave it there. And then if my kids have grandkids, I’ll retitle it over into their names.
[00:17:11.680] – Hilary Erickson
OK, yeah. So there is a lot of flexibility. And I will say my oldest is always like, can we use the five two nine for that? I’m like, yes, we can. Like you can use it for a lot.
[00:17:20.830] – Joel Cundick
Yeah, it’s pretty broad and it’s OK to have a period of not deciding. I just talked with a client’s adult child the other day who took a couple of years off school. He’s now in his early to mid 20s and now he’s going back to college. And so, you know, just because the child doesn’t decide to be linear like most of the other kids choose eighteen straight off to school, that’s OK. There’s other other things. I should also say if you end up having grandchildren that recently opened up five twenty nines to be able to be used for K through 12 private school so you can use up to ten thousand dollars of a distribution from a 529 to cover K through 12.
[00:17:54.280] – Joel Cundick
So then inevitably I said, oh well, I’m thinking of sending my child to private high school. Should I use the 529 for that? My answer generally is if you want to cover college for your child, let’s continue growing this. The number one benefit of the 529 is tax free growth. Don’t start thinking now what you can take it out for. Have it oriented towards growing well.
[00:18:12.520] – Hilary Erickson
But or if they’re a newborn, you could be like, I want to save for eight years of forever.
[00:18:17.380] – Joel Cundick
I guess you could. Yeah, I mean, you could oriented towards just saying, like, for example, I want to send them to a private high school, so I’m just going to save extra in the early years and that would take money out for private school. One other thing you can do that your listeners might be interested in, I mean, this depends, again, on the state. But like my state of Maryland, we had not funded five twenty nines.
[00:18:35.800] – Joel Cundick
So that was not something that we did a major amount for our kids. But you are able to open a 529 for the child, get a state income tax deduction for the amount that you put in in the state of Maryland, up to five thousand dollars, and then you’re actually able to take the money out the next day. So in essence, if you choose to route your college money through the five twenty nine, you can get… That amounts to about five hundred bucks of savings on college tuition every year.
[00:19:02.800] – Hilary Erickson
Yeah, that does make sense.
[00:19:04.210] – Joel Cundick
It can some people say, oh, that’s too much hassle. I’m saying, well, it depends on what you buy you. Five hundred dollars that right for you. That is worth the effort of opening the account, funding it, taking the money back out. That’s all you have to do. And that you just write the check to the university.
[00:19:15.970] – Joel Cundick
[00:19:16.480] – Hilary Erickson
Yeah. Is there any other account people should be looking at besides the five to nine or the five to nine? Makes the most sense.
[00:19:21.970] – Joel Cundick
Well, a long time ago there was something called the Coverdell ESA Education Savings Account that was created, but that was only allowed to put two thousand dollars a year into it. And it just what’s the 529 picked up speed? It became pretty clear that that was a kind of a defunct account. It’s still there.
[00:19:36.040] – Joel Cundick
It can be used. The other kind of account that can’t be helpful is a prepaid tuition account. And those are also set up by the states. You, in essence, pay the tuition that the state currently charges, but free yourself from worrying about any kind of inflation in future years. So the prepaid tuition plans don’t tend to grow as strongly as the 529 because they’re really just keeping pace with inflation, which has been very low. But they can’t be an option.
[00:19:59.290] – Joel Cundick
I’ll tell you one situation. I came up with a client recently for which they were very glad they had a prepaid tuition plan. They were residents of Florida. When they opened up their plan, they moved to Tennessee. But they want their child to go to a Florida school. Well, the Florida prepaid tuition plan for some reason allows you to get in-state tuition in Florida. If you if you were a resident of Florida and opened up prepaid tuition plan at that point.
[00:20:20.800] – Joel Cundick
And I said to the we’re talking about the college said that doesn’t sound very familiar to me. I researched after the call. Sure enough, they were spot on. Correct. If as long as you were a resident of that state when you opened up the prepaid tuition plan, that you get the luck of having in-state tuition at any of the great Florida schools, what your child went to university. And so that was what they were going to use, that it was a better account than the 529 for them because they use the five.
[00:20:44.050] – Joel Cundick
Twenty nine. The child would have been out-of-state tuition in Florida. Yeah.
[00:20:47.500] – Hilary Erickson
The problem I saw with those is it pins your kid. You have to go to an in-state school, right?
[00:20:52.600] – Joel Cundick
Well, it can. There’s an amount that it could direct towards another state’s schools, but it doesn’t tend to be as valuable. Like I said, it’s a lower value than the 529. What I love about the 529 is I can put it in a global equity portfolio and get the growth that would come off of that for more than a decade. That’s going to have a lot more growth in it than a prepaid tuition plans generally going to have.
[00:21:14.440] – Hilary Erickson
OK, good info.
[00:21:15.700] – Hilary Erickson
I’ve had some friends talking about starting a retirement account for their kids and I’m always like, I mean, we just shovel all that extra money into college savings. But I mean, do you think there’s a benefit to that?
[00:21:26.530] – Joel Cundick
Or I’ll give you the example that I have for retirement accounts for children. So you’d probably see those ads that the dentist will put out, like in the mailers and stuff with the smiling kids. You a lot of times those mailers, it’s the dentists, kids that they’re taking a picture of. They’re paying them a modeling fee for that picture and then that that’s earned income. And now they can put that money into a Roth IRA for five year olds.
[00:21:50.230] – Joel Cundick
And the power of that is you put money. If I put three thousand dollars into a Roth IRA with my child size and they don’t need it for sixty years by the time they retire. It will cover a significant portion of their retirement. It’s fascinating. So, yes, you can’t open a retirement account for little kids in that method. A lot of small business owners will do that to pay for their children in some way to be an employee of the business, get a deduction for the business from it, and also fund a retirement plan.
[00:22:17.160] – Joel Cundick
It’s much more common, I see, for couples who are trying to instill good values of savings into their teenagers when their teenagers get a summer job encouraging them to open up a Roth IRA and telling them that they will match their contribution in order to save into a retirement account, you need to have earned income. You don’t need to file a tax return. You need earned income. So if the child earned three thousand dollars a summer job and you say, hey, if you put a thousand of that into a Roth IRA, I’ll match it.
[00:22:42.090] – Joel Cundick
Now, all of a sudden you start teaching that teenager program, programing them to think about matching. I mean, I’ll remember Confessions of a Financial Adviser. I started working for Marriott the year after I graduated from college. Marriott said, we will match your contributions to a four one K to X percent. I said, whatever, I don’t have any money. We need every dollar we got. And I look back and I think you’ve got to be kidding me.
[00:23:03.060] – Joel Cundick
I mean, you get that match. I just didn’t sit down and run the numbers and think, wait a second, that’s free money. If I put aside a thousand dollars, my pay goes up by a thousand dollars because they just give me a free thousand dollars.
[00:23:15.060] – Hilary Erickson
You didn’t need money Joel. You were living the law of abundance.
[00:23:20.150] – Joel Cundick
There you go. One other thing I’ll say for high schoolers, I think is really good. This is the first major financial decision that these kids are encountering. And too often, I think parents shelter the children from it. The parents decide to shoulder the burden themselves, tell the kids to just look at schools and then quietly cringe. Oh, I hope he chooses and chooses an in state school. I hope she doesn’t decide to apply to Princeton. All of this could be alleviated somewhat by open conversation between generations.
[00:23:46.980] – Joel Cundick
There’s just not been good enough cross generational dialog in our society on any topic related to money. And then this is a money topic. But let’s start. There are children’s adulthood on a good foot forward by saying, look, let’s talk about this. And I work with high schoolers, talk to them about planning for college. And one thing I walk them through is, is, look, answer four questions for me. Pick a job that you’re interested in having some day. Research how many years it’s going to take a study to get that job. Research how much it’s going to cost in education to get that job and then research the starting salary that you’re going to have when you get that job.
[00:24:22.290] – Joel Cundick
If they will research themselves, those four questions, they’ll be further along than 80, 90 percent of these college kids who are going off to college is a life experience, not as a means to get a career someday. And I know my kids get way too much of that. Dad, the financial adviser, I boil it way too much down to numbers for them. Hey, what is our return on investment here? I understand from their feedback to be, hey, dad, that’s not the only thing that matters to you with college.
[00:24:46.950] – Joel Cundick
And I get that. But it should be one of the major components that should be considered. And oftentimes kids just haven’t drawn point A to point B, they haven’t made the connection. There they go. I’m just going to study this. It’s going to be fine. I’m going to love it. And they haven’t figured out that’s going to be one hundred thousand dollars to get the degree and twenty thousand dollars your salary once they have the degree.
[00:25:04.680] – Hilary Erickson
Yeah, I always lusted after humanities and psychology degrees, and my dad was always like, what are you going to do with that, Hilary?
[00:25:11.910] – Joel Cundick
There you go. See that? That’s blood talking there. They’re cut from the same cloth.
[00:25:18.000] – Hilary Erickson
Yeah. My parents didn’t think I was nice enough to be a nurse, though. So there’s that. I mean, there was no winning in my house. My dad thought I should own a business. Look how that worked out.
[00:25:27.270] – Joel Cundick
Well, business owner. There you go. Yeah.
[00:25:29.550] – Hilary Erickson
All right. Super helpful. Guys don’t feel guilty if you haven’t started saving yet. We always would save when we got our tax return back. So that’s a good time to, like, think could I throw some money in there instead of buying a boat another good time to do it?
[00:25:43.020] – Joel Cundick
If you get a raise. Right. If someone gets a raise and it’s three percent deciding, hey, before their first paycheck of getting that raise, we’re going to start putting twenty dollars a paycheck into a 529.
[00:25:54.210] – Joel Cundick
It really well, I say the best time to start is the next best time to start is today. Yeah right. Figure out what you can do. Start there, bring it up in increments over time and you’ll be surprised. The small differences, those small steps over time can make a huge difference.
[00:26:08.790] – Hilary Erickson
And they can make a huge difference for your kid, because if your kid has five thousand dollars of a boost up, that is still five thousand dollars. Some of this stuff versus the kid, it doesn’t.
[00:26:16.650] – Joel Cundick
It’s a big difference. And the one other thing I’ll say, this is another of those practical non it doesn’t seem like a financial advisor tips. It seems a little bit too basic, but you’ll be surprised how many people have not mapped out the years that their kids are going to be at college. Right. They’ve not mapped out, oh, I’m going to have one tuition for the first two years, then I’m going to have two tuitions for the next five years, and then I’m going to go back.
[00:26:37.170] – Joel Cundick
Oh, my goodness. That’s the point at which I need to worry. So sometimes I’ll see parents get all excited when their oldest becomes a freshman. Yay, we can pull for the 529 and then they realize three years later. Wait a sec. It would have been much better to bolster the 529 now because we got the double barrel here. This is what we call them. You’ve got two kids going to school at once and the costs are much higher and we really could use the help and support in those years.
[00:27:00.050] – Hilary Erickson
So do most people start a five to nine and each kid’s name then because we have one for each kid?
[00:27:04.310] – Hilary Erickson
Yes, very common to a lot of families. Just go straight up. This is our five to nine.
[00:27:08.510] – Joel Cundick
For all you know, I have a few families that will do that. Some do. They say, I just want to simplify it. I want to put all of the oldest, most will open it there. And the benefits of that, too, is if your state offers some kind of tax deduction, usually it’s predicated off of multiple 529 accounts. So I’ll give two examples there for Maryland, Virginia, because there are two ways of doing this.
[00:27:28.880] – Joel Cundick
Maryland, it depends on the funder. So if you want to maximize the state income tax benefit, I have to open up one. My wife has to open up one in the name of a child. And then if we want to do it for more kids, we’d have to do the same thing. So we have to have two 529 accounts for each of our children in order to maximize the annual state income tax benefit. Virginia does the opposite.
[00:27:48.200] – Joel Cundick
They say it’s by the beneficiary. So you need to open up an account for the child and you get a deduction for each child you’ve opened the account for. But they don’t care whether it’s one parent’s name or the other. You have it in both parents, but you don’t get extra tax deductions by the beneficiary.
[00:28:02.300] – Hilary Erickson
Oh, that’s super interesting. We had something in Arizona, but it’s not great.
[00:28:06.420] – Joel Cundick
So that’s never been I don’t I don’t think of that as the number one. Again, you want to think of accounts for what? Their number, what purposes? The number of purposes. The five point on is tax free growth. All of the other things are ancillary. You’d like to get the cost as low as you can. That’s why you go to that save for college dot com website, track care costs. But even there, it used to be that some states did a horrible job on expenses and it was like over one percent per year and other states had reasonable expenses like point three percent per year.
[00:28:32.840] – Joel Cundick
What states finally realized that people were comparing costs? It became a race to the bottom. In every year, states are trying to get better on their costs so that other residents would be attracted to putting into their state’s plans. So don’t rely on the fact that the costs that present being the lowest are going to stay the law. So you don’t want to switch from state to state every year funding a 529. This is that’s overthinking it. Tax free growth is the number one benefit.
[00:28:54.890] – Joel Cundick
Get the account open, start funding it and make it a disciplined, regular habit where you’re putting a dollar amount per month into it.
[00:29:01.590] – Hilary Erickson
OK, good advice to everybody. Just start today. Don’t hassle yourself on what you haven’t done because you can’t fix that now.
[00:29:07.100] – Joel Cundick
[00:29:07.790] – Hilary Erickson
All right. Good advice. Thanks, Joel. Glad to be with you. OK, I hope you guys enjoyed that episode and I hope it didn’t overwhelm you. So I want to be really clear and transparent about what we have ended up doing. My oldest is now a junior in college and we we had some money when he was younger and we kind of like stashed a little bit when we got tax returns, like I mentioned, but we just didn’t have a lot to put away, especially when you have three kids.
[00:29:29.810] – Hilary Erickson
And right as he was going to college, our business income increased a lot. And so we just shoveled money into a five to nine for him. And we continue to just kind of put a little bit into the five to nine so that he knows how much he has. We will stop doing that his senior year. He’ll know I have X, Y, Z amount of money and he can draw from that and that will be the end of it.
[00:29:48.770] – Hilary Erickson
So don’t feel like you have to do things when they’re little. I 100 percent understand that your income is a lot less when your kids are little and hopefully it grows as your kids get older. And so child number three is going to have a very different number in her five to nine when she gets to college. But hopefully we’ve kind of equaled it out because we’ve continued trying to shovel him some money as he goes along. He also got a full ride scholarship.
[00:30:12.380] – Hilary Erickson
He also works at Chipotle pretty much as much as you can while you’re in college. And I love all of those things. I love that we’re able to support him. But he also really is realizing how to live poor and also how to have that crappy job while you’re in college. Because I worked at a food service in my college and it sucked and it reminded me to graduate. So do what feels best for you. I love the advice of at least having the discussion with your partner and having the discussion with your kid to tell them kind of how much money you have to give towards them and then them making the decision because ultimately it’s going to be them paying the loans in the long run. Right?
[00:30:47.480] – Hilary Erickson
Thanks so much for joining us on today’s episode. We know you have lots of options for your ears and we are glad that you chose us. We drop episodes weekly and until next time, we hope you have a tangle free day.