College planning for Charles Jr.

Reading Time (5-7 mins)
I remember speaking to Samantha Jones about six months ago and she shared with me her concern about paying for Charles Jr. to go college. In case you have forgotten or have not had the opportunity to read about the Jones’ Charles Jr. is the eldest of their 3.5 kids. I reminded her of the 529 College plan that she and Charles Sr. had requested to have set up five years ago. A 529 College Plan is a special savings account that is sometimes referred to as a Qualified Tuition Program (QTP). Visit http://www.IRS.gov for more information)
The reason she had concerns is that Charles Jr. will be graduating from high school next year and they had not saved as much as they had wanted to save for him. Samantha and Charles Sr. wanted him to attend college and pay no more than $20,000 per year for either in state or out-of-state tuition. Since Charles Jr. wanted to major in engineering and they had a budget cap of $20,000 per year, his choices would be limited.
I recommended they check out http://www.collegeboard.com/ and type in the criteria that they wanted and the website would do the searching for them. At that time six months ago, it only returned two colleges - one in state and one out-of-state. As we spoke on the phone I remember her saying “I went to the website you told me about and I got to thinking we may have a problem” She said, “We don’t have the $20,000 a year that he needs to attend either of these colleges”.
I reminded her that five years ago, due to their budget I recommended they begin working to get Megan (7) or Justin (4) into college but not all three of them. Charles Jr. at that time was already 12 years old and we would need a minimum of 10 years for the plan to work. I told her if they wanted to pay for at least one child’s education all the way through then it would probably be Justin’s. Because of his age we had more time for his plan to work based on their monthly budget. I also told her that 529 plans work really well under a couple of conditions. Number one, if funded early because of time value money (trust me this will be covered in another topic later) and second, if funded appropriately. I told them that putting $200.00 into the plan would not get them to their goal unless they took more risk. Nevertheless, putting $2000.00 a month into the plan would be a better way to go. I also reminded her that making gifts from outside donors (to include, but not limited to grandparents, friends, and family members like their rich uncle Tom Jones who is always looking for ways to reduce his tax liability.) to the plan could expedite the journey to their goal as well.
I asked Samantha if she remembered our plan B in case we got to this point and a change of course was needed. She said she’d actually written them down. Here is Samantha’s Plan B:

1. I am the owner of the 529 plan, but we selected at that time for Charles Jr. to be the beneficiary. So what does that mean I asked? She said that we could just change the beneficiary to Megan (please talk to your tax professional here) or Justin at any time (once per calendar year as of this writing)
2. Since I am the owner and not Charles Jr. he would not have to list it on his FAFSA or Free Application for Federal Student Aid http://www.fafsa.ed.gov/index.htm as his asset. (something you own that has value or will go up in value, no not your car that’s another topic for another day) Very good and remember that was the reason we were against just a regular savings account because we wanted options I remembered saying.
3. We could also consider a community college and let the plan grow another 2-3 years in preparation for his transferring to a major university, which is the diploma that will sit on his wall in his office someday anyway. Besides, since Charles Jr. was not that strong in math he would personally benefit in a not so overwhelming environment close to home while honing his math skills for the rigorous studies of a major engineering program I also reminded her. You would also benefit as he would be a qualified student whom you still support (more tax breaks in here somewhere, but see your tax professional)
4. The most important one is the one you stressed the most she said. What is that? If he has to attend a junior college he may discover that engineering is not his thing (the heavy math may be a reason among finding other career interest to get into while on a campus) which in that case could save us thousands she said. Exactly I said with a grin.
Before I hung up the phone she said, guess what? I said what? Charles and I are expecting our fourth child. We think it’s another girl. Isn’t that great she said!