Lazy Man and Money

My Great 529 Plan Motivation Experiment

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Happy 529 Day! Today, 5/29, is often cited as a day to look into and donate to 529 college saving plans. (Are we all too Foolish to associate 4/01 with 401K plans?)

I’ll get to all the exciting stuff in 529 Plans in a minute, but first I’d like to reflect on Memorial Day weekend. There’s a lot going on in our country (assuming you are reading this in the US) and it’s helpful to pause and reflect on the good things and those who fought for those good things.

It’s because of those brave people that I can experience stupid, insignificant problems like spending hours at IKEA to find that they were out of stock of everything I wanted. It seems like a big deal at the time.

Now let’s get back to the wonderfulness of 529 plans.

Eleven years ago, I was looking for some way that I could help get my newborn nephew started on the right financial foot. I didn’t have a ton of money, but I had time. Given that he didn’t have object permanence yet, I had years. If I had the chance, I might have opened up a retirement account for him. However, it seems that I’m the only one crazy enough to think of tax breaks on such things.

I went for the next best thing, saving money for education. With 18 years, I figured that whatever I contribute will likely be 4x for him. Mathematically, that is roughly assuming 8% return and using the Rule of 72 to double once by around age 9 and again at age 18 (72 / 8% = 9 years.)

Until I started have kids of my own, I put a few dollars in there for birthdays and Christmas. Now, 11 years later, it’s grown fairly nicely. A lot of that is due to the great run of the bull market. It might end up being enough to cover 1/3rd of a year of tuition by the time he gets to college.

It should make a very noticeable difference for him, but I barely even noticed the money was gone. I feel there are very few “no-brainer” decisions in the world, but this is one of them.

Last month, I came across a regular reader and commenter, Stephanie from Graduated Learning, and her Tweet:

I should have probably sent my guide on How to choose a 529 Plan, but I figured that’s actually the easy part. I just gave it a Google search and there are several high quality sources there.

Instead, I shared something extremely interesting that my state, Rhode Island, does. It gives you $100 grant if you sign up when your baby is born. It’s the opposite of the old Monopoly Community Chest card where you pay the $100 for a baby.

However, since Stephanie doesn’t live in Rhode Island, I figured I’d use the same motivation:

To my surprise a couple other long-time personal finance bloggers, Poorer Than You and My Journey to Millions saw this and decided to jump in:

The plan worked! Baby Stephanie has a 529 Plan.

With my 4x rule above, we can expect the $75 to grow to around $300, which isn’t even a drop in the grand scheme of college savings. However, Stephanie is going to start monthly contributions. Baby Stephanie should be the beneficiary of years of compound interest.

I’ll be the first to admit that I loved how this worked out. I often need a kick in the pants to do what seems like a small, insignificant thing. Now, I just have to figure out how to draw on this experience to motivate myself.

Hacking College Costs Through Adoption

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Today’s article is inspired by an email conversation with a complete stranger.

This needs a little explaining.

I have a personal email account with the form of first letter, last name at a very large email provider. For example: [email protected]

Parenting Funny

A few times a year people send me email thinking that they are emailing their friend Joe, Jen, or James. Whenever I get these, I try to help the person out by explaining that their email isn’t getting where it was intended.

This week an email came in from an “@princeton.edu” address. After I let her know about the error, I asked if there was a way that she could grease the wheels for my boys to get accepted there.

She came up with a great idea. As an employee, Princeton gives her 50% off tuition for her kids. Alas, she doesn’t have kids herself. She then offered to adopted my kids.

I explained that my kids were 4 and 5 and it would be a little too much to ask with it being so far down the line.

I hope it’s obvious by now that we were joking back and forth. However, let’s pause and thinking about the idea.

Is there an adoption loophole that allows college employees to make money with their benefit?

Princeton’s tuition is around $43,000 a year. It’s a little more, so let’s round it to $175,000 for 4 years. If my newfound friend were able to adopt one child the cost would be $87,500 with a savings of $87,500. (I love easy math like “divide by 2”.) It would make sense for a student to give $43,750 to the newfound friend to save the other $43,750.

To put it more simply, the employee discount is 2 years free, so a student would pay one year to the employee to get a year free. It’s win-win, right?

Of course the downside is that the adoption process might not be so simple. I don’t know how any of it works. There’s also the pesky problem of having a stranger be the parent of your child for a bit. On the other hand, we seem to have embraced the world of surrogate mothers, so maybe this isn’t so far-fetched? Of course, there might be options where the employee is a family friend and not a complete stranger.

I’m also sure that it might raise eyebrows to adopt a child just before he’s college age for the discount. Maybe colleges have a rule against that. I did a few internet searches and the schools I found didn’t seem to have anything outlined.

College costs seem to keep going up at an astronomical rate. As long as they keep going up, I expect more and more people will “think outside the box” to save money.

This is How Bad the Student Loan Epidemic Is

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Every few months I feel the need to share another story about how bad student loans have gotten. I find it interesting because for the first 5-7 years of writing this blog, the topic didn’t even occur to me. A few other personal finance writers would write an article or two, but I don’t remember reading much before 2010. Some advertisers asked me to write about student loans and I’d pass.

I didn’t feel qualified to write about student loans. I was blessed with a full scholarship. I didn’t have any clue how the system worked.

Fast forward to 2017 and it’s hard to stay away from the student loan news. Today, I wanted to share one instance of silver-lining to the student loan dark cloud.

“The system is broke and makes no sense!!”

Logan Ryan Hates Student Loans
Logan Ryan Hates Student Loans

A few weeks ago, NFL cornerback Logan Ryan announced something unusual on his Instagram. He paid off $82,000 of his brother’s student loans. Here’s what he wrote:

“Surprised my big bro and paid off his student loans for his 29th Bday!! My man got accepted to college, graduated with honors, and now works as an engineer. He did everything the right way and still lives with a ridiculous amount of student loan debt. The system is broke and makes no sense!!”

That’s a very nice thing that Mr. Ryan did for his brother. Of course Mr. Ryan signed a $30 million dollar contract for 3 seasons. On the surface, this isn’t too dissimilar than an athlete making millions and buying a new house for his parents.

However, let’s breakdown what we know (or at least what we are lead to believe):

  1. His brother graduated with honors.
  2. His brother graduated with a STEM degree.
  3. His brother is 29 years old. (We’ll presume he’s been out of school for 5+ years).
  4. His brother had $82,000 in loans (the check amount).

That’s a lot of student loans to have left after that long with what would seem to be a distinguished, high-paying degree/career. Logan Ryan is right, the system is broken and it doesn’t make any sense. It doesn’t take a financial expert to see it.

I wish there were a way to get some politicians elected who could help make things better. Just a few days ago, the LA Times wrote that “It’s Betsy DeVos’ job to protect students from predatory for-profit colleges. She should do it”. It’s so bad that nearly 20 states had to sue her andn the Department of Education over what she’s doing to prevent students from getting helped by what the times says is, “the worst fraud in the higher education.”

It is hard for me to wrap my head around so many states suing a government agency because the agency wants to protect companies committing alleged fraud. It makes as much sense as fire trucks going around burning down houses.

Sorry for the rant, let me reel myself in and close with a few words about Logan Ryan. He played for the New England Patriots until he was signed by the Tennessee Titans as a free agent. As a fan of the Patriots, I came to appreciate the stuff he did off the field. He’s been extremely active in rescuing dogs, which regular readers know is a cause near and dear to me. I hope Titans appreciate his performance on and off of the field as much as I did.

Past, Present, and Future

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I’ve never liked click-bait titles. You know, those kind of titles that end with, “… and you won’t believe what happened!” I am almost always disappointed because the “unbelievable thing”, wasn’t so unbelievable.

So today, I’m going to do the opposite and start with the most boring title I can think of. By setting the expectation low, I can’t help but surpass it, right?

We’ll start with:

The Past

It’s Memorial Day in the United States. For many it is a time to reflect on the people who gave their lives for our country. For some it is an excuse to drink beer and eat burgers. If you are in the later group, I hope you spend some time reflecting on why we have the holiday. Having an appreciation might make your beer and burger taste a little better.

It’s tempting to write a whole blog post about Memorial Day, but this site is about personal finance. There are some great military blogs and news sites that will do a far better job than I will

The Present

Long weekends are great for my dog sitting business. It was looking bleak for most of the month, but in the last week, we booked up completely. I even had to turn away a couple of dogs. (That’s always a heart-breaker.)

We’ve had a lot of rain this weekend, so I haven’t gotten out much. I’m a long ways away from The Shining territory, but I am starting to feel a little trapped. My 4-year old suggested that we play memory for Memorial Day. I liked his logic. The four of us played and my wife cheated by using her photographic memory. She got twice the matches I did. I got twice the matches my 4-year old did. And the 4-year old got twice the matches my 3-year old did. Sounds like an SAT problem.

The rainy Memorial Day weekend is significant for our local economy. We get a ton of tourism and Memorial Day is the unofficial start of summer. (Shop owners can in some ways say, “Happy Memorial Day!” and not have it sound weird. This is when they make most of their money.) With the rain, people didn’t come and didn’t spend money. I’ve seen restaurants gut their staff after such a hit.

The Future

Today is also 5/29. For personal finance blogs like this one, it is a significant date. It’s an annual reminder to those of us who have kids that we might want to contribute to their 529 Plan.

If you are new to 529 Plans they are tax-advantaged way to save for college. They almost work like Roth IRAs where the money grows and comes out tax-free. That’s a decent tax perk. In my state, Rhode Island, we can also deduct up to $1000 from our taxes per year. Since we are saving for our kids college anyway, it makes sense to do it this way.

It seems that Rhode Island has another tax perk that could prove very interesting. It seems that a couple is allowed unlimited carry over of this deduction. I understand this to mean that if we put in $40,000 today we could deduct $1000 off our taxes for the next 40 years. I need to consult my tax advisor on this to make sure I understand it correctly.

If that’s true, it is not too shabby to have that tax deduction hanging around. Of course, who knows if we’ll live in Rhode Island or be alive in 40 years. The only downside is that a $1000 state tax deduction may only amount to a $40-60 savings each year at Rhode Island’s correct tax rates. Hmmm, that’s not too exciting after all.

It is a little dated now, but 10 years ago, I wrote a brief guide to choosing a 529 plan. The main ideas are still helpful, but the specific numbers for the states probably have changed.

I found that if your state offers one with some tax deduction (like Rhode Island), usually that’s the way to go. If your state doesn’t (California didn’t when I lived there), it may be best to explore another state’s plan. Back in 2007, I decided that Ohio’s was the best fit for us. I still have a couple of accounts with them today.

However, you choose to spend today, I hope it is meaningful to you.

Rhode Island Promises Free College – Let’s Discuss

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I live in Rhode Island. It’s no secret that it’s the smallest state. The population isn’t much bigger at around a million people. Compared to Massachusetts and California where I’ve lived before, not much happens here.

Rhode Island Promises Free College

Last night the local news mentioned that Rhode Island would be eligible for free tuition at all of its state schools. The tuition is regardless of family’s income level. The student, for the most part, has to be stay in good standing and be on track to graduate on time with the school.

One more thing… only two years of college would be covered. If a student wants to pursue an associate’s degree at CCRI, tuition is straight-up free. If the student is going to a 4-year school like University of Rhode Island, he/she would get the 3rd and 4th years tuition-free. The idea is to make sure students have some “skin in the game.”

There’s an official page about Rhode Island’s Promise Program with all the details if you are interested. It may be easier to read this news report of some common questions.

This is potentially BIG news for us. While I jokingly like to say that Harvard and Stanford are “safety schools” for our boys, state college may end being a great option for them. It’s perhaps possible to combine it with my wife’s GI bill that gives 4 years of free tuition. Since that can be divided between both boys, it would cover their first two years.

The end result would be completely free bachelor degrees for our two boys. One of our biggest expenses would disappear.

It’s another reminder that college planning is impossible.

Rhode Island Promise Program Isn’t Without Controversy

From my reading Rhode Island’s Promise program is extremely likely to pass as it has strong government support.

I was following some of the Facebook chatter and people had very strong opinions against the plan.

Most viewed it as a hand-out funded by taxpayers. I would ask that everyone read this article on subsidies. I think it would be hard to find someone who hasn’t taken advantage of a hand-outs/subsidies.

Still, those people aren’t wrong, taxpayers would pay for this plan just like they pay for many, many things. Governor Gina Raimondo makes the point that the $30 million estimated cost is a drop in the bucket for the state’s $9 billion budget. If you think about it, it’s Clayton Kershaw’s salary for throwing a baseball each year. It is an estimated $30 for each person in Rhode Island a year.

Other people simply didn’t think it was a fair plan. They were upset that they had to pay their own way. I can understand this, but at the same time, things change. My first mortgage was nearly 6% and people in recent years got them around 3%. I’d caution these envious people to try to look at it as a change for the better.

Still more point out that it isn’t limited to people of low-income. If your family makes $200,000 a year, you can still get the program. I don’t have an answer as to why they wouldn’t limit it to people of economic need. Perhaps because it’s a drop in the budget, it isn’t worth it to have some left behind or create a complex phasing schedule.

Why Rhode Island Promise Program Is Great

Did you read the part above about my boys getting free bachelor degrees? Okay, seriously here are a few good things:

  • A College Degree is Necessary Nowadays
    It used to be that a high-school degree was the norm and a college degree got you into the management positions. Nowadays, college degrees are much more common. It seems that a Master’s or higher is now needed to separate you from the pack of job applicants. We paid for the high school degree in the past for students to be competitive, doesn’t it make sense to pay for college now?

  • Students May Graduate on Time
    Rhode Island has a bit of an education problem on its hands. Only 14% of students graduate from Rhode Island College on time. University of Rhode Island is at 49%. Since this program pushes students to be on-schedule with graduating on time, it is estimated it could help.

  • College Debt Suffocates Graduates
    I previously wrote that college tuition seems to be in a bubble. Since a college degree is necessary, colleges can continue to raise prices and tell the students to just get more loans.

    High student loans limit the ability of graduates to buy houses and cars, go out dinner and buy other things that help our economy.

  • Draws and Keeps People in Rhode Island
    One of the things mentioned is that Rhode Island is heavily courting General Electric to have its headquarters here. It’s probably not going to be a key consideration for such a big company. However, a smaller company might find it easier to move their business to a state where their employees have the potential of some free tuition for their family.

  • Education Benefits Everyone
    I was chatting with a friend about it on Facebook last night and he had a great thought, “I’m a fan of spending on education. A well-educated society benefits everyone.”

    He pointed out that the people with degrees through this program may be less of a burden on welfare and other subsidies. I’m not a scholar on crime rates, but it took me 30 seconds to find this study, about how education reduces crime. Obviously crime costs taxpayer money in police, fire, and hospital resources.

I think it’s easy to see where I fall on the topic. Obviously, I’m quite biased on this particular topic because it greatly impacts me. Where would you stand if such a program were implemented in your state?

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