CloudFi | Finances for Growing Families

As parents, most of our time is spent managing our day-to-day lives. While making sure our kids master life’s lessons, it’s easy to put saving for college on the back burner. Experts say we should start early and balance our efforts between saving for retirement and college. It’s a juggling act, but a necessary feat if the goal is to send our child to the school of his or her choosing.

Just how are real parents doing it these days? What college savings tactics are they using? CloudFi asked three families. They wanted to share their stories, but not their names. So we changed them. Here are their stories.

A Balancing Act

Sabrina and Samuel are in their mid thirties. Sabrina is a software engineer for a telecommunications company and Samuel is a software engineering manager at a Silicon Valley technology company. They live in San Ramon, a San Francisco Bay Area suburb. Their six-year old daughter, Rebecca, attends the local elementary school.

For years, they have saved money into an employer sponsored 401(k) plan. And, when their daughter was born, they purchased a tax deferred, cash value life insurance policy. They plan to use this cash, tax-free, to help fund their daughter’s college education. And they would also like to start a college savings plan.

Recently, they purchased a home. So, while they haven’t been able to put money away for college, they plan to do so as soon as they are able. Sabrina believes it is now more important to prioritize saving for college above saving for their retirement. Sabrina and Samuel’s biggest concerns include planning for ever increasing college costs and tapping into advice that they can trust. They hope that whatever plan they embark upon will be safe and secure.

MYTH: All 529 Plans are made up of stocks and mutual funds, involving some risk.

FACT: You can fund a 529 plan that is made-up of CDs, money markets or savings bonds, which involve little or no risk. Yet, unlike a traditional savings or taxable brokerage account, these type of 529 plans allow you to use the money, tax-free, for college funding purposes.

The Best Laid Plans

Ronald and Tamara live in Westborough, an affluent suburb of Western Massachusetts. Now a full-time writer, Ronald is a former director of grant development at a local community college. Tamara is a science teacher at the local high school. They have three boys. The eldest, Christopher, is 13. The twins, Edward and Noah, are 11.

Ronald and Tamara started saving for college in early 2000 when Ronald’s father encouraged them to invest in the first Massachusetts-based 529 plan that was offered by Fidelity. Ronald and Tamara were investing $50 every month into the plan until recently when Ronald left his job to pursue his newly formed freelance writing business.

Their portfolio consists of a variety of mutual funds. With a blend of conservative and aggressive funds, they are modest investors.

Soon, Christopher will turn 14. As the college years fast approach, Ronald and Tamara realize that they must step-up their college saving efforts. “We have to come up with a lot more money,” says Ronald. He would like his boys to have the opportunity to attend a university in the Midwest, like Northwestern, or one in the Southeast, like Duke.

For Ronald and Tamara, saving for college is secondary to saving for retirement. They worry about having enough left over to be able to save for college.

MYTH: Private Schools are out of reach unless you have saved a lot of money.

FACT: Many private colleges and universities offer more financial aid than their public, state-run counterparts. This sometimes means that they can be more affordable than state-run schools.

Thinking about Tomorrow

Clare and Bob live in Pleasant Hill, another suburb of the San Francisco Bay Area. This is the second marriage for both of them. Clare is a senior account executive for an advertising specialty company. She has a 15-year old daughter, Maureen, from her first marriage. Bob works as a project manager in the oil industry. He has a daughter, Karen, from his first marriage. Karen is now a senior at California State University, Chico.

When Maureen was six or seven, Clare opened a custodial IRA through Morgan Stanley. She selected this type of account because 529 plans did not exist when Maureen was younger.

And she likes the flexibility of being able to use the funds for other purposes, just in case Maureen chooses not to go to college in the U.S. Currently, she saves around $200 per month into that account.

If Maureen turns 18 and isn’t sure what career she wants to pursue, Clare expects Maureen to take all her general education requirements at a local community college. Then she can transfer to complete her bachelor’s degree at a four-year institution such as UC Berkeley.

Sending Maureen to a community college first will give Clare more time to save. And, if Maureen must work during the summer months to contribute somewhat, Clare thinks that is okay. “We could put more away. But, we believe there is nothing wrong with allowing a child to make her own way,” says Clare. “Our retirement is first and foremost.”

MYTH: Some children are not able to receive financial aid because their parents earn too much.

FACT: There are a wide-variety of financial aid options available, including grants, work-earning programs, scholarships and loans. Most American families qualify for some financial aid. Since there is not a precise cutoff for financial aid, it is a big mistake not to apply.