Can you imagine having a 529 child millionaire? With the cost of education continuing to skyrocket, creating a 529 child millionaire might be a necessity for parents with children under five nowadays. By the time kids go to college in 15-18 years, it may very well cost $1 million for all four years!
With regular contributions, company matching, profit sharing, and conservative returns, many of you will eventually become 401(k) millionaires. But what may be more exciting is if your children become 529 plan millionaires before they even get their first full-time job!
With $1 million by the time your child gets their first full-time job, they'll be able to live a life of leisure (or purpose). They won't feel pressured to take a high-paying job they hate just because society says it's prestigious work. Further, they might feel less guilt knowing their parents didn't have to sacrifice so much to pay for their private school tuition.
Think about how many more young adults would become teachers, non-profit workers, journalists, and volunteers. Clearly, the world would be a better place if everybody did work they loved. There is no greater love than being able to help others.
Cost Of Private Grade School
By going the public school route from kindergarten through college, the vast majority of parents who are able to pay private school tuition in the first place, will have accumulated $1 million or more if they diligently save and invest the difference for 22 years.
Below is an example of the total cost of sending your kid to private grade school and private university in 2024. Expect the costs to rise each year by 5% or so.
Given the tax advantages, let's use the 529 college savings plan to see what type of contributions or returns are necessary to make millionaire dreams come true for kids.
Becoming A 529 Child Millionaire
If you follow each of the three contribution scenarios you will be able to create a 529 millionaire. You will be able to become a millionaire by 20.
Contribution Scenario #1: $15,000/year
As a single parent with no contributions from anybody else, making your kid a 529 millionaire is going to be difficult. You'd have to contribute $15,000 a year for 18 years and earn a compound return of 12.6%. Active fund managers have achieved such results before, namely Warren Buffet. But you aren't Warren Buffet.
Your goal should be to convince the absentee father or mother to do the right thing and at least contribute to the child's education as well. Another solution is to find a new partner who is willing to pitch in.
$15,000 a year was the maximum gift limit for estate tax purposes in 2020 and is used in the examples below for simplicity. In 2025, the gift tax limit is $19,000. Each parent can give $19,000, so that's $38,000 a year starting in 2025.
Contribution Scenario #2: $30,000/year
With two parents contributing $15,000 a year to their child's 529, becoming a 529 millionaire is highly possible. After 18 years of compounding at a more achievable 6.2% rate of return, the 529 plan will have ballooned to $1,003,512.
Based on historical returns, a 6.2% annual rate of return can be achieved with a 20% stock, 80% bond portfolio. Perhaps future rates of return will be lower for both stocks and bonds, but all the same, even a 50/50 allocation is quite conservative and may achieve a 6.2% IRR.
Contribution Scenario #3: $45,000/year
Another great way to get to 529 millionaire status is to convince one or two grandparents to contribute a combined $15,000 a year. Many grandparents I know are more than happy to help out their grandchildren while still alive. With $45,000 a year compounding at just a 3% rate of return for 18 years, the 529 plan will have grown to $1,012,908.
Your goal should be to ensure the grandparents live as long as possible and have a healthy life. This means regularly calling, e-mailing, and visiting them. Show them the love and respect they deserve for raising you to be the outstanding citizen that you are. They will love that you are an unselfish parent willing to put your kids first.
Of course, if you can somehow get multiple grandparents and relatives to contribute more, then your child will likely be a multi-millionaire after 18-22 years. But this is an unlikely scenario so let's leave things at $45,000 a year in contributions.
My Son's Current 529 Plan
My seven-and-a-half-year-old son currently has ~$417,000 in his 529 due to me superfunding his account in 2017, and contributions from my wife and his grandmother. When you “superfund” a 529 plan, you're essentially paying for 5 years' worth of contributions all at once.
So in 2025, an individual can contribute up to $95,000 in a single year (the 2025 annual gift max of $19,000 x 5 years = $95,000) to a particular 529 plan. But you can't give more money to that same recipient within the 5-year period without the excess counting against your lifetime gift tax exemption.
My family's base case plan for my son's account will be $15,000 a year in 529 contributions from my wife for 17 more years. To reach 529 millionaire status, we would need a 7.9% annual return, which while attainable, is probably too optimistic as the fund gets less aggressive closer to the target college date.
It may sound ridiculous to try to make my kids 529 millionaires, however, the average American household is now a millionaire accord to the Fed! And I'd like my kids to be better than average.
529 Child Millionaire Game Plan
Thus, to be more realistic while still increasing the chances of getting to $1,000,000 before he goes to college, I will be lobbying for at least one grandparent to contribute $15,000 a year along with my wife's $15,000 annual contribution.
To demonstrate appreciation to a grandparent or two, my son will regularly write letters updating the grandparent(s) on how he's doing. He'll learn about the power of investing and the purpose of his education. A win all around!
In such a scenario, all we need to do is return 4.2% a year to get to 529 millionaire status.
Will Keep On Contributing To Their 529 Plans Here And There
If I somehow fail at convincing any grandparent or my wife to contribute $15,000 a year, all is not lost. Since 2022 (after my 5-year superfund period finished), I can to contribute again up to each year's contribution max, which typically goes up every year. But his plan would have to earn closer to a 8.5% compounded annual return.
Below is the chart of my son's 529 plan I started in July 2017, a couple weeks after I received the proceeds from my SF rental house sale. I felt bad selling the house because I had envisioned keeping it for him to manage and/or live in one day. It was our insurance policy against runaway real estate inflation 20+ years from now.
But the maintenance, tenants, and $23,000 a year in property taxes really started getting to me, so I sold to simplify life. The least I could do was start his 529 plan and conservatively redeploy the rest.
A Better Child Millionaire Solution
The problem with being a 529 child millionaire is that you can only use the 529 money for education. Further, there are limits to how much you can contribute to your child's 529 (~$300,000 – $520,00 depending on state), even though that limit is always rising. Thus, you won't be able to gift your little one any balance that's left upon his college graduation, even if he does go to public school.
Further, if he gets one whiff that you are trying to make him a 529 millionaire, he will likely decide to go to the most expensive private school available and use up all the money! Shhhh.
The clear solution for making your child a millionaire by 22 is to grow their 529 plan to the cap for tax benefits and then open an after-tax brokerage account or digital wealth advisor account once the cap is reached and consistently contribute.
You can model the structure of the after-tax portfolio to one of the many 529 target date funds if you so choose. Any funds left over after college expenses can then be reabsorbed into your estate or given to your child if s/he makes you proud.
You're free to contribute much more to your child's investment account if you are willing and able. However, it's probably not a good idea to make your kid a multi-millionaire upon graduation, otherwise, your child might lose all motivation.
Related: Contribute To A Roth IRA Or 529 Plan?
A Good Idea To Make Your Child A Millionaire?
I believe that if my parents had cut me a surprise check for $1,000,000 after graduating from The College of William & Mary in 1999 I would not have slacked off. Instead, I would have been so grateful and used the gift to take more calculated risks.
The whole point of my going to William & Mary was so that I could minimize their financial burden. Tuition was only $2,800 a year when I went, so I knew that I could pay them back even by working a minimum wage job. They worked government jobs, hence, were middle class folks.
With $1,000,000 in the bank, I would have certainly bought the 2/2 Manhattan condo I missed for $799,000 back in 2000 that would now be worth over $2,000,000 today.
With the remaining $800,000 or so, I probably would have invested at least $30,000 in VCSY instead of just $3,000. The $30,000 would have turned into $1,500,000.
Dangerous To Have So Much Money So Young
But with that type of money at age 24, I could have confused brains with luck and eventually lost a fortune investing in other internet stocks.
I'd like to think that I'd still work until age 34 because for at least 10 years I enjoyed working in International Equities. It was exciting times because both China and India were opening up to foreign investment in the early 2000s. But there was a moment at age 25 when I really wanted to move back to Hawaii and just chill out due to the events of 9/11.
With at least a $1,500,000 net worth at 26, it would have been very tempting to call it quits and be a surf bum. Then again, with so much money, I might have left banking earlier to join or create a successful startup.
Parents Need To Be Careful Saving Too Much Money
It's important for parents who plan to diligently save for their child's education to do the following:
- Never tell them of your plan to make them millionaires
- Continuously demonstrate sound financial habits in front of your children
- Continuously demonstrate a good work ethic
- Provide them with ongoing financial education
- Make them work minimum wage jobs in high school
- Make them volunteer to help others less fortunate
- Open up a custodial Roth IRA to build the habit of saving and investing regularly
Because we lived in a very humble townhouse and my parents drove an 8-year-old Toyota Camry when I was in public high school, I appreciated every single dollar my parents provided. But if my parents had driven new BMWs, lived in a mansion as some of my friends did, and I went to a private school, I probably wouldn't have appreciated any financial gifts they may have given me.
Whether you want your kid to have a million bucks or not, you'll likely have this option if you simply save and invest consistently for him. If you don't want to make him a millionaire, then you can simply be one yourself.
How's that for the power of financial discipline? Once you know what's possible, everything becomes more achievable.
Related posts:
If You Want To Be A Real Millionaire $3 Million Is The New $1 Million
Recommended 529 Amounts By Age
How To Become A Millionaire By 20
If your 529 plans change: 529 plans offer significant flexibility should the designated beneficiary (student) decide not to attend college, or if the funds are not used for other qualified educational expenses. You can take out the money as a non-qualified withdrawal, but any earnings on non-qualified distributions are subject to federal income taxes at the recipient's rate as well as a 10% federal penalty. Of you can use the funds on another family member.
A 529 plan is a great generational wealth transfer tool. I'd much rather give my loved ones an education than just money. If your kid becomes a 529 plan millionaire, $35,000 of the unused funds can be rolled over into a Roth IRA starting in 2024.
For the record: My hope is that my kid wins the SF public school lottery and gets to go to a great public school that's not too far away from our house.
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Graphic by Colleen Kong-Savage.
What sort of article is this? Let’s see if a better title to this article makes sense. How is this “how to spoil your rich kids, a guide to spoiled parents!!”? This is how we make future generation dumb, less competitive, dependent and lazy by giving them lot more than what they need in terms of a good education support. Your article and theme disgusts me! Don’t think I am poor, I have way more than what you address in this article, but the notion of making kids millionaire by the age 22, phew it totally makes me puke!
I love the fire you have Raj! Thanks for sharing. This article is a thought exercise that points out how ridiculous the price of certain colleges have gotten.
Some private universities cost $395,000 all in TODAY, e.g. USC, Boston University. In 15 years, the cost will be closer to $1 million all in.
You don’t have to make your children lazy and dependent if you don’t want to.
One thing I am surprised was not mentioned was the ability to use a 529 as a perpetual family education fund.
The beneficiary of 529’s can be changed to anyone in a family. Ideally this would allow a large enough portfolio to grow forever and be able to provide funding for education for generations to come.
I have seen some discussion of this on financial advisers and lawyers websites.
As near as I can tell, this is a fabulous way to avoid taxes for generations. Congress will probably eventually change this, but until it does let’s take full advantage of it!
My husband and I are blessed to be in a very secure financial situation. We are considering front-loading our kids 529s if/when the market corrects. I’d love to hear more of your thoughts on pros/cons of potentially overfunding 529 accounts. It seems you are on the side of aggressively funding 529 accounts. I recently read another article in support of this (http://rpgplanner.com/529-plan-opportunity/) but a financial advisor that I spoke with recently recommended being conservative with my kids 529s to avoid the penalty and putting extra money into other investments (taxable brokerage, real estate).
How would you advise a single parent approach 529 savings for two kids, and starting late (6th grade), on a modest income (approx $125K), in a high cost of living zip code.
I believe this advice as written is for much higher income, single child, dual income families. Unfortunately, that is not me!
Thank you
My opinion:
I paid for my brother’s tuition – Masters (5 years younger than me) 4 years back, so I can talk with recent experience. This probably sounds a big deal, but I am an immigrant and in my culture, it’s OK for the elder sibling to look out for the younger one. It’s actually a proven ticket out of poverty.
There are 2 perspectives of this article. The first is that of prudence – will it cover all education related expenses, if the current tuition bubble keeps growing? The second is about gifting financial freedom to your child. I have my perspectives to both.
Prudence:
This is the perspective I would mildly entertain. Gifting your child a life without student loan is a big deal. You are giving a kid the opportunity to fly as they wish. You are handing them a clean slate. I love that aspect of a education fund. However, $1M, the only way I could justify is the brand! Personally, I don’t see myself justifying a $1M tuition/expenses, but that could be because I am an immigrant, employed in hi-tech, where your alma-mater helps open the door for your first job. After that, not as much.
Gifting Financial Freedom:
This comes from my experience. I do not like this option.
My brother got a free ticket to a Masters degree in the U.S. I pretty much put 3 years of diligent savings. That delayed my personal milestone. My “why” for the sacrifice: It would worth it, if it helped kick start my brothers life. I was giving him a 5 year head-start in comparison to his peers (Post-master, he would start as a Project Manager, I took 5 years to get there).
What I discounted is that my brother had no clue how much I gave up (eating PBJ when the rest of your colleagues are going out for lunch specials does hur). He did not have the fire-under-the-belly mentality that I had. I grew up with him, we went to the same school, we lived in the same place. I just assumed, he would be like me. And there was no way, I would have predicted that he would be that much of a slacker. I love him, I wanted the best for him. I was blinded by that. I thought, it would just work out! This is a miss in my judgement, I agree. AND, I believe every parent would be blinded by a similar emotion !
Huge gifts, rarely have the desired income. I have come to see that the receipient invariable starts believing that they deserve the entitlement and that creates a new problem.
My take:
I would probably only fund the education costs. Specifically, I want my kid to have skin in the game. My thought: I will be paying for tuition and books, the rest of the expenses, my kids cough up. I could be brutal and wrong, but I have been burnt once!
I would still save the $1M, but that money would be inheritance and be routed through trusts. And they would have to earn it – academic scores, volunteering, age-based accomplishments etc. Personally, giving free money is like gifting a a gun. You can teach all you want, they are the ones who pull the trigger. I would rather they earn it !
Again, this is my personal opinion. I believe the Sam – big fan – has the right intention. It’s probably not what I would do.
This article is pretty timely for me. I just started toying with the idea YESTERDAY of doing a 529 for my nephew. He’s less than a year old.
Of course, he won’t be a 529 millionaire. His father died mysteriously (cause of death is still unknown) and his mother doesn’t work (yet). I’m sure she will start saving for him and I’m sure the grandparents will pitch in as well. I don’t plan on putting much in myself, but I figure regular contributions of about $25/paycheck plus investment gains should help pay for SOMETHING.
I wouldn’t just hand someone that kind of money at that age ($1,000,000). They need to prove themselves. Even if the kid goes onto to support himself in a crappy apartment with a low paying job, at least the kid would experience the wealth that he/she earned. If I had that money to be handed off to a child, it would come with some strings attached.
Good article.
Sincerely,
ARB–Angry Retail Banker
We’re not saving a single penny for our two young children. Not one cent. But we are spending a considerable amount of time teaching them about personal finance, entrepreneurship, business, responsibility and anything else needed for them to launch their own businesses long before high school.
Maybe they’ll become millionaires, maybe they won’t, but it will a conscious choice on their part.
Bravo! I am made out of the same philosophy! Why people feel need to pamper their kids so much? The money you earn is realization of your ability and focus in life besides a luck factor. Donating tons of money to children is selfishly stupid. Once you die why feel so attached to the word in an unequal way? Why can’t people rise and see world as a large family and not stash up wealth in one person’s bank account to make him or her basically spoiled dumb demotivated to do anything really bright?
Self-made millionaires will never be confused with trust fund babies. Never.
It’s hard to believe that FS would actually advocate for this given his personal life story and work ethic. I suppose it will take more exposure to the latter group – and perhaps his own children down the road – before reaching the same conclusion. It even seems like he’s already vaguely aware of this conflict given all the “Shhh, keep it secret” comments in the post.
A well known quote on my desk says “Happiness is not a state to arrive at, but a manner of traveling.” The same applies to achieving FI. You certainly don’t achieve FI (much less work ethic, character and any number of other wonderful life skills) by opening your hand and having Dad drop a $1M check into it on your 21st birthday.
I like the article and agree with a great many of the comments. But I will add young persons can be given opportunity but they need to have a sense of “skin in the game.” My wife and I work and are putting money away for all these things in our children’s lives and want them to do better than ourselves (every parent’s desire).
But the money will not be unconditional. Standards will be met to get the money. The money will also not be flat given for event. Our children will be on dollar for dollar match program for everything: first car, tuition, wedding, etc. They and their future partner will need to show what they bring to the table.
Great job funding that much for your son’s 529 plan. I think funding a million bucks for college is a bit too much but the idea of constantly funding the account and seeing it grow by the compounding effect shows that you are dedicated to cover most, if not all costs for your kid during their time in college.
If I had a million dollars in my son’s 529 plan, I would not disclose to him that amount because it may not motivate him to do well when he’s in college. He may take it for granted because the costs are covered and may put a higher priority on doing other things like hanging out with friends or going to college parties.
Before he gets to the college level, I will try my best to teach him basic finances like learning how to value money, saving and the power of compounding. I want to give him that awareness that money is great tool to achieve your goals and provide happiness.
Sam,
Like you said, let’s say your child does become a 529 millionaire, what could he do with the rest of that money after education related costs.
I mean he could gift that and transfer it over to other family members right? Is there something I’m missing?
With a handful of exceptions, you’ll pay income taxes and penalties on any distributed funds not used for education. It’s similar to pulling out retirement funds before retirement age. That’s one major downside of overfunding a 529 plan and includes the pretty common situation where your kid decides college is a waste of time and either never attends or graduates.
It indeed seems ridiculous that you need to have a million dollars to send your kid to school and college. I think the US education system is broken, just as the healthcare system.
Luckily, you guys get the opportunity to save with before-tax dollars for your education. At least that helps. But still, the need to save 15, 30, even 45k per year for 18 years is crazy.
Here in Europe (The Netherlands at least) education is cheaper. High school is maybe a few hundred euros per year, college and university are around 2100 euros per year for most universities except for private ones (these are up to 15,000 per year in tuition). However, a lot of public schools are as good as or better than some private schools.
Sometimes I wish I would’ve been born in the US, given your guy’s salaries I read sometimes. When reading articles like this one, I’m pretty happy with The Netherlands.
Hi, Sam! Love your blog and your humor. This is the first time posting. We just sent off our firstborn to college and tapped into our 529 to pay the first semester. Being Asian American too, I was raised with a little bit of feast/famine mentality. Frugality and security is deeply rooted into my psyche. When I got married, we started funneling money aside into a mutual fund to pay for college until the kids were born and opened up 529 plans. We expected college to be down the road and our goal was to not have student debt for our kids.
Fast forward to now – we have about $235K for our oldest and $119k for our second child. Going in-state helps as well as a handful of scholarships. Most of our friends provide an allowance for spending/entertainment money but we decided to provide her the amount that she was awarded in scholarships since she earned those. (She also earned money during the summer at a fast food restaurant.) Any remaining funds in the 529 can be used for graduate school or rolled into another beneficiary.
I guess I’m questioning about the benefit of having $1 million dollars tied up in 529. I realize many people are just starting the early stages of parenting and education costs are continuously rising….but $1 million per child in 529? Would it be better to have a minor account or IRA for contributions beyond the 529 cap? We did neither so I’m just asking out of curiosity.
In regards to having the $1 million available to children – I don’t think there’s any right/wrong answer to it and it’s really personal to each family. Money can provide security and opportunity but it can also mess you up if not handled correctly. I’ve seen families broken up fighting over an estate or monetary gifts. Watch the documentary “Born Rich” by Jamie Johnson (heir to Johnson&Johnson) – it’s eye-opening to the expectations, fears and anxieties wealth can bring.
Thank you, Sam, for bringing up thoughtful topics regarding wealth.
My goal is to have 4 years of state school (ny) tuition saved for my son.
If he wants to go to a private college he can get loans to bridge the gap.
Student loans build character.
Our approach is similar. I wish these articles delved a bit more into financial strategies. For better or worse, our strategy for each child entails:
– Fund 4 years worth of state school
– Let child know up front that is the plan. If they want masters or more its on them. If they want more expensive private college the excess is on them
– Require a degree that can make money – STEM, accounting, business, etc. If they want social sciences, music etc that is fine but they must do both (ie double major) to get the money
– To achieve we target about 75% of 40K (roughly current state tuition) times 4 years. Sam points out that 529 millionaire is silly and it is. Any balance over the cost you expect to pay is a loss – assuming you are not planning on using 529 for other relatives. Of course if you start early and are aggressive there is a risk of overfunding if markets do really well, so redo numbers annually.
– To help incentivize kids we offer any money they earn in scholarship they keep half and we keep half from the savings we would have paid after any 529 penalties – assuming extra exists. So if we have 130K earmarked for a kid’s 160K college and they earn 100K in scholarships, we pay the remaining 60K out of the 130K leaving 70K in 529. We then give them 50% of that amount less penalties and fees. Whether we cash in that 529 or just move excess to another child depends on need.
You’ll enjoy this article as the ultimate strategy: How To Stop Worrying About Your Child’s Future Again
I take issue with making them get a degree in STEM. I was an arts major and I will be making over $500k this year. Yes, I did end up
working for a tech company, but my arts background gave me the ability to take on a business side role that requires creativity. I do wish I minored in engineering, but please know many of us arts majors are doing quite well. I would say my BFA paid off big time. I am 36 and have 1.5M in net worth having graduated college with no debt (thanks mom and dad) but also not additional financial gifts past undergrad.
Fine print question: once you hit the 529 limit (say 300,000) does that mean you can’t put any more funds in, or that you would have to take any extra from growth out? In other words, can the balance exceed the limit due to growth? And how quickly is that limit growing (varies by state I assume)? I’ve tried to figure this out, but it seems to require a lot of digging.
This may have already been stated but if you open a 529 and name yourself as beneficiary then there is not a limit due to the gift tax.
Interesting! So I can just put myself as a beneficiary, change my mind when my son needs to get his tuition paid, and go from there?
The rules are unclear. But here is a related tip. I started a 529 for myself when I was 22. I thought maybe I would go to grad school but also I figured one day I would have kids and could transfer funds to them. By the time I had my first kid at 34 I had about 40k in the account. At that point I knew I wanted 1-2 more kids, so I began finding my son’s account and continued funding my own. Today my son is 2 and I have 35k in his account and 45k in mine. My understanding is I will be able to transfer 30k per year from my account into my kid’s accounts without gift tax. However I am unsure exactly what the laws are on this, as it’s also ok to change beneficiaries on a 529 to a family manner, and I see no information about that triggering taxes. But that seems like it would be a massive tax loophole that the wealthy would take advantage of if it was real. To be safe I’m only transferring over 30k per year max. I plan to keep some in my own account and move a bit to each kid (I’m due in January and hope to have another at 39 in 2-3 years), so I will continue this strategy. The 529 power is in the compounding, esp in CA or other state with no tax advantage. While our state schools are great, my parents covered full ride at private arts school and I want to give my kids that option if possible.
No I do not suggest that fewer people become teachers, rather people find out the realities of the classroom and not take it up because of nebulous benefits like short hours and long holidays. I spent most of my “free” time on self improvement and have had wonderful experiences all over the US. For this, I was expected to arrange and conduct inservices. Sadly I seem to remember statistics that show the average time spent in the classroom by a second career teacher is 2 years.
Having said that, it is a wonderful career and what I did with my own children was to volunteer as this really shows you what a school is like whether public or private. This gives a good insight as to whether to consider teaching as a career.
As you did with your tennis coaching
The other place to assess the teachers in your local schools is the local colleges which carry out teacher training. These feed their local schools and the college that invests heavily in good training turns out good teachers.
My best experience has been to have ex students tend to me in my recent near death experience and my worst was the student who remarked that teachers shouldn’t be able to afford a BMW when I was driving my husbands.
I am increasingly bothered by seeing, on FIRE websites, the teaching profession touted as a “worthwhile” profession for financially secure people with time on their hands. Trust me, teaching is hard work. I have taught in a mixture of schools both in the UK and the US. Single gender, mixed, rich, poor, private, public. Although I taught in an all girls private school, we sent our own children to our excellent public schools. In retirement, I now substitute at these local schools and can vouch for the professionalism and hard work of the teachers I substitute for. These teachers have to have degrees and clear credentials as well as take regular in services and further degrees. In my view, teachers are badly underpaid. I was a physics and chemistry teacher yet I never received the salary I should have received. But of course, I am serving the community so it doesn’t matter.
As for private v public, get into a good school district, and go public. Public school teachers are much better qualified. Public schools are better funded and equipped if the district is good. And parents can make that happen. Then encourage your child to do an undergraduate degree at the state university. My children went to UC Irvine, lived at home and ended up with no student loans. My son entered the US Navy as an enlisted man straight from school, then worked at night at Boeing as a fitter. With money from both of these and living at home, he was financially secure. My younger daughter was able to do her junior year abroad.
My son believes that the Navy helped him mature.
To clarify, are you recommending less people become teachers? If so, why is that?
I believe teachers are undervalued. I believe they should get paid more. And I believe there should be more teachers.
I’m a high school tennis coach, and I put way more time in to my job and the pay warrants.
Sam you touched on a very good subject (not 529 related): “Should you give your child $1M when she’s 21, or private school education from K-12?”.
We have friends who sent their kids from K-12 to very expensive private schools. I did some rough calculation if you put $40K per year from 2005 to 2018, you’d get ~$1.2M from S&P 500(with dividend re-invested).
Honestly I’d prefer my dad give me that kind of money when I graduate from college. My first 20 years professionally had been just pure struggles: putting together down payment while saving for retirement, on a single income, while trying to raise a family, being laid-off twice, etc.. This means back pains, hair loss, endless sleepless nights, etc.. Luckily I hit the stock options jackpot later, but I don’t know if all that sacrifice is worth it. On the other hand, we’ve seen some recent graduate who effortlessly bought homes in bay area with help from their parents, raise much bigger families while holding so-so jobs, and see their home values soar to millions. I’m not sure my contribution to society is greater than theirs, but certainly my struggle was much more.
I don’t understand private K-12, with the exception of if a student has a disability and requires extra attention (and even then I’m weary as my parents spent $150k years ago to send my sister to private specialist school. While she made it through college she now makes $13 an hour and has no direction or confidence to boost her earnings—imagine if they put $150k into having her learn a skill of some sort or career counseling!) In any case, unless you are just wealthy to the point money grows on trees, why pay for private K-12 when this is available for free? My husband and I are both public school kids. While I went to private college (arts school) I didn’t understand money at the time and how much more it really cost (I knew it was more than my in-state school but didn’t get how much more!) Meanwhile, my husband went to CC for 2 years and transferred to one of the top public universities in the US where he earned his degree. I somehow fell into a career in tech (on the business side) and I think my private college helped me get there due to opportunities available — but undoubtedly had I gone to state school I could have found equally useful opportunities. If my parents offered me the difference in cost between public and private after graduation to start out (or explained they needed it for retirement) I would have gone public hands down. But I do see value in private college in some cases. K-12? I would put money into enrichment activities outside of school and tutoring if needed, but not making my kids feel like they are part of some elite group just because they went private. Now I did recently purchase a Bay Area home and I chose to buy in a tier 2 school district (Ie HS is rated “8” on great schools.) And I acknowledge it is a luxury to select a good school district. But the people who can afford private school can also afford to purchase homes in these areas and put their money into the schools. It is insane how some public schools are ranked so low—criminal if you ask me. But the answer to this not private school. It is fighting for more funding for public schools.
My wife and I bought two rental apartments 14 years ago before we had our first child, who is now 7. The younger one is 3. We always want d two kids and thought real estate, amongst some other fund investments could be good for the kids. Both apartments are paid off thanks to a steady stream of tenants paying the bills. They are both in the center of a large capital city with excellent demand. Both are worth around 800k$. Given the current demand I think they still have excellent room to grow before we sell them, so both kids should have a nice investment when they “come of age”.
Congratulations to you and your children.
Thanks. Love your blog. Keep it coming :)
People are still worshipping at the altar of “higher education” for reasons that are totally unclear to me. Many, maybe most, of the jobs that require higher education (physician, attorney, professor) are disappearing or becoming both less remunerative and more unpleasant. I really think the value of a formal degree is diminishing drastically from both educational and pecuniary standpoints. The world has changed from when today’s parents were children, and inherited wealth has taken on much more importance as salaries decrease and formal work becomes worse and worse.
The best thing you can do for your kids is teach them about finances and frugality and give them at least a small financial boost as they hit their twenties. I’m not sure a college degree will be necessary in twenty years, so be careful with the huge 529s.
Great Post SAM! I definitely appreciate snow’s take as well as LH’s. However, I’m rolling with Snow and Sam on this as “Why not work smarter, rather than harder” especially if we are solving for the “Same” end goal which is “Wealth and/or Fin Independence”, right? We get up, commit, grind, sacrifice and then wash/repeat all over again for MONEY. At times the grind is a thrill, but it’s still about MONEY to tackle your end goal.
Thus, why not teach your kids Asset management and hard work? Do what the rich and wealthy have done for decades with their kids and let’s not reinvent the wheel? Sure, the law of averages will occur in any family as we are all unperfect human beings (i.e. Lazy kid = Lazy kid/adult; Driven kid = Driven kid/adult). However, between hard work and/or asset management they can at least feed themselves.
Overall this is interesting because this issue and conversation is too common among those from humble/poor beginnings who are also on a upward trajectory of wealth (Mid/upper class). But yet, we can’t imagine our kids not having to STRUGGLE. Heck, I have my fair share of poor stories (i.e. welfare, trailer homes and ghettos) but I’d willingly trade those for an upbringing consisting of similar values of hard work and grit. IT’s POSSIBLE…I’ve seen many very wealthy families who harp on frugality daily and who’s kids also want their own independence, etc. Don’t get stuck in the middle class trap and way of thinking.
In regards to the need for fancy education (especially upper education that’s readily free online), it’s a nice “bonus”, but to Sam and Snow’s point be careful to not place too much emphasis on it . 10-15+ years from now, it’ll be equivalent to selling your kid a cassette player to listen to music. I’m looking at private (k-12) like a country club membership with the added bonus of a solid foundation. Your kid and fam can make better connections there than at some colleges. College is just a good place to grow, network and maybe make a few more connections, lol.
Take it from somewhere smarter than me and look up Albert Einstein….”Compounding quote”
Thanks – that was my approach in the beginning as well (not worrying as much about asset allocation), and then as always, time flew by. I’m also at Fidelity, so fees weren’t crazy but the difference between the two was ~.6% so it adds up as the balance builds/compounds, but more importantly I think over an 18 year horizon the managers of those time based funds will materially under perform against the index, but time will tell…thanks again.
My siblings and I all knew as early as first grade that we were expected to go to college and that our parents would fund it – which they did 100%. We weren’t spoiled or entitled as a result, and now that I have a daughter entering college as a freshman this year, and another who will be going in about five, I am paying it forward to them. I also established a ROTH IRA for my eldest using her earned income during school years, and will do the same for my youngest. This also is intended to mimic a gift from my parents at graduation to me and each of my siblings. I hope that it will allow my children to make choices and take some risks that they would otherwise not be able to make if saddled with significant student loan debt or a lack of any safety net when they first start their careers. Those things that my parents did for me made all the difference in my financial life. I hope that it has the same effect for my children.
Good to hear. Do you ever wonder how you would’ve turned out if you had to pay your way through college? How do you think your kids would respond if you told them they had to foot the bill? I think it would be a fun social experiment! And then if you find them to be really struggling, you can say, “surprise! I got this because dad loves you.”
Good questions. I probably would not have moved to NYC without a job when I graduated from college, or gone back to law school (I borrowed money to do this, as I have always viewed the money from my parents as insurance and a small amount of freedom). But I think I would have had a decent career even if I didn’t go back to law school and had to pay back undergraduate student loans. I witnessed the freedom of having money as a child and would have wanted to position myself for that regardless. The more interesting question is whether I would have wanted the freedom associated with money if I hadn’t seen it early in life. I am not sure about that. As for my kids, I told my oldest that she needs to keep sufficient grades to keep her merit scholarship (about $16,000) or she would need to pay for that through loans. If that comes to pass I will follow through, but would consider paying those off later for her. I am not sure how or whether I will need to incentivize my youngest (who is 13). I learned early on that “one size doesn’t fit all” when it comes to kids.
Keep thinking and blogging. I enjoy your posts.
Not concerned about over funding your child’s 529 plan? Now that I’ve got enough saved to cover the full cost of attendance at our state flagship university, I don’t know that it makes sense to continue contributions. I’m thinking starting next year I may contribute a nominal amount to get our nominal state tax credit, but divert the rest to other investments with more flexibility. This seems to be consistent with the advice of older folks who’ve already put their kids through school, although I’m not entirely convinced I shouldn’t just save enough to cover private tuition since I can and have time.
I tend to agree that overfunding is probably not the best decision (of course if you have money come out your ears, sure, why not) simply because (a) it is locked up and (b) depending on the age of your kids, you have no idea what the future holds. For example, I graduated high school in 2000 and since then there are two things that have exploded in popularity: (1) AP classes and (2) Technology. As to (1), while AP classes have been around for a while, they have really kicked into gear the last 20 years (my sister graduated high school in 1996 and went to a top 5 liberal arts school for college, there was 0 mention of AP credit at that time). As a result, depending on the school, it may be possible to eliminate a semester or two just by having the proper AP class; even at my top 20 liberal arts school, I knew several people who were able to knock out 2-3 classes simply with AP credits. As to (2), just think about all the technology that has blown up over the last 15/20 years. No one has any idea what the future may hold and what skills will be in demand, and whether college will be the best way to teach them.
Now, while I still think college will be important for the kids of most people reading this (although maybe not our grandchildren), there are no guarantees. I have 529s for both my girls. If I keep my savings rate constant, my contributions will pay, in current dollars, for 1 year of private school or 2 just shy of 2 years of public school. While I will continue to increase my contributions, once I reach enough to cover 4 years at our public school, I will divert elsewhere simply because I think it is a better use of funds.
I have 3 kids: 9/6/2 yo. Here’s my strategy: Put $20k per year (max that’s tax-deductible in IL for in-state 529 plan) into IL 529 plan, and in addition to it, put $2k per kid ($6k total) into a Coverdell Account.
I think people don’t give enough credit to Coverdells: yes the max is miserable $2k, but you can invest into almost anything (I use Schwab), and, if you send your kid to a private school, you can use the Coverdell as an emergency-emergency savings account that you can withdraw from since you can use it for k-12 expenses. Additionally, at least in IL, you can transfer the balance from Coverdell to 529 and deduct state taxes from the principal of the contribution.
Please note that even with the tax law changes, not all states allow use of 529 plans for k-12 expenses. Illinois doesn’t.
There are multiple benefits to 529. Some states give deductions. Also there is federal tax sheltering. So, with recent changes in law I believe even in Illinois 529 for k-12 can be beneficial since growth on savings are tax sheltered. Also, maybe a state’s limits should not dictate your limits – I believe. The 20K/year max is just how much you get for IL state deduction purposes. But if you can do more you should maybe at least consider it because you still get tax sheltering of federal. Worth looking into. If you check it out with an advisor or professional and find this is not correct please update.