Retirement or College: Which to save for first?
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- Опубликовано: 29 июн 2024
- Should you pay for your kids' college or save more for retirement? It's a conundrum most parents will face. Here is a unique solution to the problem, which can help you do both at the same time...
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00:00 - Intro
01:04 - #1
02:14 - #2
03:02 - #3
03:44 - #4
05:00 - #5
06:18 - #6
07:14 - #7
09:15 - Why do this? #1
09:54 - Why? #2
10:17 - Why #3
11:05 - Thanks Supporters!
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My parents did exactly that. They paid for my education, and... I flunked out. They didn't and still don't have much in the way of retirement savings. I went back to school when I was 25 and finished my degree (paid for by my own personal loans). Now in my mid-30s, I make enough income to give my parents $1k a month for their retirement. I don't know what they would have done if I actually turned out to be a failure.
Wow, that’s crazy! Thanks for being vulnerable and sharing that with everyone.
I’m sure your folks are grateful for your financial help.
We told our boys we’d pay for state university. Interestingly the older one transferred to a more prestige private college and told him he would have to borrow the difference. The other son went on to pharmacy college with borrowed money. In both cases the boys have paid all these borrowed funds.
Success depends on the actions or steps you take to achieve it. Building wealth involves developing good habits, such as regularly setting aside money for sound investments.
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Great advice! Thank you....
Of course! ;)
Great video Nathan!
Thanks, George!
Excellent points. People seem to think giving your kids money will help them become good people, but the opposite is often true.
Thanks, Sean. Nothing ruins a kid more than having unlimited access to money and whatever else they want.
We did the "both" approach.
But challenges got in the way and we only got partway there for both the retirement accounts and the 529 accounts.
For the latter, it was a good thing. As was the case with me, our kids had to step up and took some loans while also getting some support from us. This worked exactly as you describe, in terms of motivation.
And we also helped afterwards, for one, when they didn't think they would get the help.. (but after they had proven they were on the path to independence).
At this point (age 27, as we have twins) they both are fully self-sufficient.
Excellent! Thank you for sharing your personal story! It's great that they stepped up; I find that kids (we have 4) always step up to our expectations of them. They are amazing and we underestimate their abilities.
I've thought about this subject quite a bit
Hopefully this was helpful and spurred some ideas!
Nathan- what are your thoughts about reduction act and converting money from the 529 into an IRA in the child's name ? The rules on this seem a little gray but from what it looks like you can still move about 35k. What do you think if multiple kids and being able to transfer the 529 to another child ?
The act allows for the transfer of funds from a 529 plan to a Roth IRA in the beneficiary's name. This is particularly beneficial if the funds in the 529 plan are not fully utilized for education expenses. However, there are several conditions to this:
- The 529 plan must have been open for at least 15 years.
- The rollover amount is subject to the annual Roth IRA contribution limits.
- The lifetime limit for these rollovers is $35,000 per beneficiary.
- These rules aim to prevent individuals from using 529 plans solely as a tax-advantaged way to fund Roth IRAs.
If those are fulfilled, it's a great option to add more flexibility!
I feel like i missed something. Who's Roth IRA are you contributing to and how do you get the money out of it? I love the idea of pushing a child to have some earned income and contributing into a roth in their name. Great its theirs for retirement and they can pull principle to pay for college without penalties, but those tax free dollars are pretty precious to use like that. IF the Roth is in my name same deal i have to be old enough to get the money out without penalty to cut them the check and still those dollar are pretty precious to be pulling all at once. I suppose i just feel like i am missing some details in the plan. With my Roth contribution annual caps being so limited i just cant see not wanting to let the money grow as long as possible, and the no RMDs. Why not just contribute to the 529 and just not tell them until after their first year? Im definitely on the train of funding retirement first, it makes total sense, but the idea of using Roth dollars like that just seemed to be back to compromising a key retirement asset.
This is a sound, rational advice, Nathan. I've been doing the same with my kids, too. There is one challenge with this however and that's managing the psychological side of things.
You see, one day your high schooler will come back home and say, dad it looks like most of my classmates parents have set some good money aside for their college 👀 Yes, we live in an area where people are relatively well off.. So what do you answer your kid? You keep mum? You explain why you're so poor? Or that you're not poor but lecture them how you achieved everything myself and so should they? Do you want to make your child to feel like Cinderella? That's the question...
So I've corrected course and told them that they can count on our support (50% of what it costs) in exchange for 100% effort on their part as well as full transparency into how they're doing in college. That our support is predicated on their success. No success - no money.
Wow, great point and a great plan!!
Interesting
Glad you thought so!
Hot take; instead of trying to save for your own retirement as well as your kids education why not let them figure out education on their own if they want to go to school and save for their own retirement along with yours ? If you put 5,000 into the S&P 500 at the time they’re born with a 100 per month contribution assuming the 11% annualized return you’d have roughly 350,000 to give to them on their 30th birthday. If they took out student loans they can pay them back and have a massive head start on their own retirement savings at that point.
That’s an interesting point!
My Hot take:
Funding your kids is their education is the best inheritance you can leave your kids.
Of course don’t become a burden (save less than what you NEED for retirement), but don’t save it to give it when it so much less to them.
Thanks for your thoughts! I love when people disagree in a healthy, thoughtful, and respectful way. What do you mean by “when it is so much less to then”?
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I'm not much of an expert on energy, sorry!!
Hmm I’ve been putting into kids 529 for 4 years now but this makes a lot of sense. If I chose to switch it up is it a bad idea to pull the 529 money and put it into Roth or should I just leave it be?
How do you feel about custodian accounts for your kids? Maybe another vid topic for ya
Have you been contributing to a Roth also? Or your 401k?
@@NathanWinklepleckCFA yeah I’m doing 50$ per kid a month (there’s 4) for 529 plus company match and 3% in 401 and another 3% in Roth
Wait i was suppose to have a college fund and mom was supposed to have a retirement. Who knew?
😂
Some parents never tell their children much financially. We knew nothing!
Both are free with a Finnish passport 😊
Nothing is free 😜
@@NathanWinklepleckCFA Well yea, if you stay in the country and finance the next generations studies through your taxes. But as you are studying you'll get about 800€/month from the government for rent and food. So yea, it's not free studying in Finland, they actually pay you to study longer. Elderly homes are free and pension is also guarenteed to a nice level even if you decided not to work a day in your life. Daycare costs about 10€ per day if you have income.
The point is that the system where you need to save a lot for your childrens education or for basic level of pension are unfair towards the individuals born with the wrong parents or unable to get a good salary (for example unintelligent folks or the same uneducated ones). Sick system makes the poor people bitter and the lucky ones stressed since you have to work (kinda like a slave) for those mandatory savings to maintain the "good" life.
@@nakke3 I appreciate this perspective. In the West, at least in the US, we are constantly fed information about capitalism ultimately raising the standards for everyone. I do believe that to be true and that government tends to allocate capital poorly (at it's core "capitalism" is capital in the hands of the people; "socialism" is capital in the hands of the government) BUT I do agree that everyone should be pulled up and given a chance to thrive... basic needs like food, healthcare, and education should be available to all, particularly in a wealthy country like the US and others, so I have become more sympathetic to the capitalism + social safety net methodology.
@@NathanWinklepleckCFA They call it wellfare society and even the capitalist parties in the parlament are not questioning this system. Finland is the "happiest" country, but it only measures the absence of unhappiness and angciety. Every system has down sides. For example 2-4% of people here are just lazy and take advantage of the system. Nice side-effect of our system though is that there is not much crime and almost no violence in the society. Also we don't need to be scared to be fired so the managers can't boss people around. I'd say the working class and the women have even too much power in Finland to my liking.
Have you looked into bitcoin ?
😂
@@NathanWinklepleckCFA if you gift your kids a Bitcoin each I guarantee they'll be able to pay for school just fine 👍