The Ticking Time Bomb

The other day I was chatting with my mom, and the subject of investing came up.  My mom said, "At least your kids have college funds."  Awkward silence while I let the waves of guilt crash over me.

"Mom, only Isaac has a college fund, and he doesn't even have enough for a semester."

To be fair, we've only recently gotten our financial house in order, so to speak.  We had a money pit of a house in Portland that was heavily mortgaged.  We finally sold it for a pittance two years ago, and only paid off the loan on that house last summer.  I finally paid off the last of my student loans last fall.

However, Isaac will be eleven in August, and Mindy is hot on his heels.  2019 looms in front of me like financial Armageddon, but even though one of my favorite hobbies is financial forecasting (I am a CPA, remember), I don't spend much time thinking about college funding.  I don't know if it's just boring to me or if I'm in such a blind panic that it's better not to think about it.  College funding has the same effect on me as when Jacob talks about his IT work.  My eyes glaze over and my brain shuts down and I wake up a few minutes later not knowing quite what's going on.

My son goes to college in just over 7 years.

I was thinking that Pepperdine University would be such a nice place for the kids to go.  It's a Christian school with a very good reputation in a nice location there on the beach in Malibu.  What a nice campus to visit, and the kids could go away to school and only be a thousand miles away!  So I went to their website.

Did you know that the annual cost of attending Pepperdine is more than $50,000 per year, and they haven't updated their cost estimator since 2009?!?!

Blind panic.

Okay, so perhaps Pepperdine is a bad idea.  Who wants to go to LA, anyway?

I looked at the cost of attending my alma mater, Harding University.  It's more than 2,000 miles away and the location is, well, Arkansas, but the annual cost is less than half of Pepperdine.  Okay, so maybe it's not the best campus to visit.  There's no sunny Pacific Ocean, no bustling metropolis, no sterling reputation.  But it's affordable.


Then there's Portland State University, where I did my post-baccalaureate accounting studies.  It's about $10,000 a year for tuition, and the kids could live at home.  Admittedly, it's not as cool as living in Malibu, but through the lenses of cost PSU starts looking downright shiny, doesn't it?

Or they could go to Clackamas Community College and ride their bikes to class every day.  I hope it doesn't come to this, but thank heavens for community colleges, right?  Jacob and I have both taken classes at community colleges and the modest expense is a life-saver.

I know that there is financial aid available.  Hopefully my kids will keep their grades up and get lots of scholarships, but I doubt they'll qualify for need-based financial aid.  I thought about retiring early so we're broke when the kids go to college, but considering I'll be barely forty, I can't see that being a wise option.

The most common methods of college savings (other than pretending it's not going to happen) are 529 plans and educational savings accounts.  529 plans behave a lot like a Roth IRA.  The money is put in after taxes, the growth and income are tax-free, and the money can be withdrawn tax-free as long as the distributions are used for qualified educational expenses (college).  One of the nicest things about a 529 plan is that the money in the plan still belongs to the person who invested it (me).  If your kid turns out to not be college material, you stick their younger sibling's name on the account and pretend it was theirs all along.

Educational savings accounts are a lot like 529s, but they lost their shininess after 529 plans came along, mostly because the contribution limits have been pretty low and the money in the plan belongs to the beneficiary.  However, at least the way the law stands right this minute (I think), you can use the distributions for educational expenses even before college: private school tuition, for example.

So, how am I going to save for my kids' college education?

Uh . . . . . .

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. . .

Huh?  What?  Sorry.  I must have blacked out for a minute there.  What were we talking about?