<p>When my D was born, we bought zero coupon muni bonds, with wonderful yields at the time, and assumed $25,000 maturing in each year of college would be enough. Now it is half of what I need. We just did not count on the costs of college going up so far. Muni yields are way too low now to work.</p>
<p>^I was one of those people who liked to have seperate accounts set aside for the important things like college and retirement. We invested differently for each and it gave us a better handle on where we stood for retirement rather than having it all in one big pot so to speak.</p>
<p>Nice going OP with your planning for your little one. Do you plan on having more than one child? I would also urge you not to decide what your childs options are when the little one is not even here yet. When my kids were born I could never have imagined that the right school for son one was MIT or Cornell for sons 2 and 3. My daughter is at a state school and it is right for her but it would not have been the right choice especially for my first born.</p>
<p>and here is today’s tuition $9400, a 30x of that in 1970</p>
<p>[Budgets</a> for Undergraduates 2009-2010](<a href=“http://www.ucsd.edu/current-students/finances/financial-aid/budgeting/undergraduates-20092010.html]Budgets”>http://www.ucsd.edu/current-students/finances/financial-aid/budgeting/undergraduates-20092010.html)</p>
<p>execuse me for 2010-2011 it is $11,300, and increase of 20%</p>
<p>Save what you reasonably can and modify the plan as you go along and see where BG is headed (maybe she’ll want a special theater program not offered at the local state U for example), whether she’ll even end up going to a 4 year college (you don’t really know for sure now). It’d be good to add to the savings as you go along as long as it’s reasonable and you can still do some family vacations, etc. </p>
<p>You also have to consider what to do if you end up with ‘baby2ontheway’ and ‘baby3ontheway’. </p>
<p>There are lots of possibilities down the road ranging from being able to pay full fare for the most expensive undergrad/grad to doing 2 years at a local CC and then attending a local state U as a commuter where the costs would be minimal. </p>
<p>There are a lot of variables as well including where you’ll work, what the family income is, whether someone gets laid off, whether someone gets sick, what college best fits the kid, how many kids there’ll be, and even other expenses you might have related to medical treatments and other unexpected costs.</p>
<p>You might even find that 18 years from now your opinion on limiting the cost to the state school may change. Having kids will do that to you - make you re-assess your decisions in areas like this. </p>
<p>It’s great that you’re thinking about all of this now.</p>
<p>Keep in mind that the closer your child gets to attending college the less of the savings should be in the stock market. The balance should shift to fixed income. </p>
<p>This is a basic rule of investing. People violated this rule a couple years ago and lost 50% of their investment right when they were going to need it. Violate this rule at your own peril.</p>
<p>"It’s great that you’re thinking about all of this now. "</p>
<p>Ditto, and that you are not hopeless about it and giving up. That’s what I wanted to do when we first ran the numbers and my kids where one and four years old.</p>
<p>And we almost made it… too bad my D was class of 2008. Lost alot between the college search and the college intent to enroll.We violated the rule,</p>
<p>^ Your plan sounds fine to me.</p>
<p>You can always shift some more money towards education costs if they end up being higher than expected.</p>
<p>There’s something that doesn’t seem right to me. I don’t know why you’re worried that your $45K is “not enough.” It’s not as though a window slams shut the moment you put your $45K into whatever investment/savings vehicle you desire, and you can never add to the pool of savings. Your $45K is a fabulous, fabulous start, and just add on every year as you’re able to. Maybe put a certain amount in the account every year on your daughter’s birthday.</p>
<p>My goal is to have enough saved up now that I don’t have to add any more to her college savings. </p>
<p>It’s financially far smarter to let money grow over an 18 year period than a 9 year period or 5 year period.</p>
<p>Of course, is something dramatic happens and either my savings don’t grow per plan or college costs rise faster than expected, I’ll have to add some.</p>
<p>It also might not be bad to at least read up and understand some basic knowledge about financial aid. You don’t need to know all the details and things might easily change in the future but knowing things like never put the money in your kids name or any asset or cash belong to the kids will be assessed at a much higher rate than the parents. Moreover, college fund for your children belonging to the grandparents are assessed at zero when financial aid is calculated. You can try to take advantage of some of the rules when considering opening college fund account. Again, things might change 18 years from now, but allocating assets to several places and keeping things flexible where you can adjust to rule changes are possible if you know what you are doing.</p>
<p>We invested a relatively small amount (a small fraction of what the OP proposes to invest) in a USAA indexed mutual fund when my kids were three and four years old. I’m not sure we’ve ever gotten back to the initial deposit amount. We just threw $$ into our general savings pot and refinanced to a 15 year fixed so we’d have lots of home equity.</p>
<p>Aren’t some of the state-sponsored tuition guarantee plans in deep financial doo-doo because they didn’t make their targeted earnings and were threatening to not be able to pay the benefits promised without legislative funding authorizations? I remember seeing some posts on CC earlier this year.</p>
<p>OP, there are a number of parents here who saved what would have been a perfectly adequate amount of $$ for college, only to have higher ed inflation and the market crash shred those plans to pieces.</p>
<p>So, while some of are saying that $45k may not be enough, it’s terrific you have the funds to do this. You are definitely ahead of the game.</p>
<p>Add me to the chorus saying that you need to have adequate reserves for other needs already in hand before you put $$ in a dedicated 529 account.</p>
<p>Public university inflation has averaged 6.5%/year for the last 20 years:</p>
<p>[Free</a> By 50: Public College Cost Inflation 1980 to 2010](<a href=“http://www.freeby50.com/2010/02/public-college-cost-inflation-1980-to.html]Free”>Public College Cost Inflation 1980 to 2010 | Free By 50)</p>
<p>IMO it will be much higher than that for at least the next several years, as cash-strapped states cut the amount of money they fund their public universities with.</p>
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<p>…something that may not even happen</p>
<p>What may not even happen? The child may not even attend college? This is a rather unhelpful view. He’s obviously planning for this child to attend, so he must go forward and make plans. In many families, attending college is absolutely expected. That said, I don’t think he should be so rigid; what if the child wants to attend an out-of-state school or has a unique talent or ability that can best be accommodated elsewhere? I wouldn’t want to set things in stone so much. He should consider more flexibility going forward, keeping an eye on growth and adding to the fund to keep it in line with the cost of college.</p>
<p>I started both 529 and more flexible UTMA accounts for my kids. They’ll use the 529 for tuition, room and board and the UTMA for books and incidentals. The plan is that they’ll deplete the 529 in four years, but they’ll have some cash left in the UTMA for grad school or to use as a nest egg. This will also motivate them to be more thrifty with the UTMA.</p>
<p>In almost all 529 plans you can automatically have the money put in less aggressive investments over time. I was appalled in 2007 to discover that my dad had put a lot of money into the 529 plans for my kids (and his own 401K) with almost 70% in stocks. As my dad was approaching 70 and my son approaching 18 I called him in early 2008 and insisted that he move it all to fixed income- investments mainly Us Gov’t bonds and bond funds with a little in international bonds. WHew! Of course, being in my 40s I did NOT do this with my own savings. OUCH! My much younger daughter and niece were only partially sheilded since he kept about 50% iof their 529s in stock. Now I have my 401 K and the kids 529s in these automatic transfer systems so that the percentage in stocks and corporate bonds goes down over time as they approach college age adn I approach retirement.</p>
<p>It is not worth your while to try to guestimate (or rely on lucky and timely advice like my dad) when there will be adjustments …those automatic transfers to more secure investments make a lot of sense but you havve to figure in a lower rate of return.</p>
<p>After the 529s became more flexible, we also switched them to a more conservative mix, so they didn’t lose much value.</p>
<p>I would not allocate $$ specifically for college. You are better off putting more into 401K.
College $$ might bite at the end. Much better to have a goal of getting Merit scholarships.</p>
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<p>Well, not to be morbid about it, but some kids (a small fraction, but some) don’t make it to college age, or end up with debilitating injuries or illnesses that preclude it, or end up in some distant war somewhere, or simply lack the interest, aptitude, or motivation, or . . . . You get the picture. Just because you want your kid to go to college doesn’t mean it’s necessarily going to happen. Of course it is wise to plan for it, and to plan in such a way as to make it possible. But a sound plan will also acknowledge other possibilities. </p>
<p>There are great tax advantages to a 529, but if I had $45,000 to set aside at my child’s birth I wouldn’t lock it all up in a 529. Maybe half. I’d invest the rest in taxable investments that can also grow, but can be tapped for other purposes without penalty, with the intention that some specified fraction of that money be unofficially designated as college savings, subject to being raided in the event of emergency. What if I end up unable to work, or the kid needs costly medical care beyond what my health insurance covers? Then I’d add to both the 529 and the taxable investment on an automatic monthly savings plan that takes those funds directly out of my bank account right after payday: the “pay yourself first” approach. It’s pretty painless that way. There’s no reason the cost of college has to come from a single lump-sum investment up front. Put half the $45K in the 529 and the other half in a mutual fund, then add a few hundred dollars to each account for the 216 months from your daughter’s birth until she reaches 18. If you’re disciplined about it the funds will grow over time, and you’ll have a lot more flexibility and a bigger financial cushion if things don’t work out as you planned.</p>
<p>45K Saved?! Good work! (I’m so jealous–I have no savings 
)</p>
<p>As ttparent noted above:</p>
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<p>Allow me to add to ttparent’s advice:</p>
<p>NEVER PUT THE MONEY IN YOUR KID’S NAME OR ANY ASSET OR CASH BELONGING TO THE KIDS WILL BE ASSESSED AT A MUCH HIGHER RATE THAT THE PARENTS’ !!!</p>
<p>We didn’t get this advice 22 years ago when our first child was born, and for the past six years we’ve been trying to do whatever we could to avoid having 20% of the funds we’d accrued for our kids’ educations lost to a naive clerical error. We’ve been looking for the few schools that treat students’ assets the same as parents, looking to convert to 529 plans, etc. Your FAFSA aid eligibility is predicated upon your income and assets. If the money you’re saving is from your own income and assets, then the true and just accounting of your kids’ need is to keep those assets in your own name where they’ll be assessed at 5.6%, not in your kid’ names where they’ll have to hand over 20-25% of them per year.</p>
<p>By my calculations you’ll need to contribute an additional $165 per paycheck in a 529 or equivalent, assuming an initial COA of $80k for class of '13 and a terminal COA of $250k for class of '31.</p>
<p>This assumes a 5% return on investment from 2011 to 2027 (0% after that) and a 6% inflation rate on COA through 2031. You’d cover 75% of the COA.</p>
<p>When I was in your situation I looked at the COA of the most expensive private school in CA. My biggest mistakes were over estimating my rate of return, underestimating COA inflation, not contributing on a incremental basis and taking advantage of dollar-cost-averaging…and allowing DS’s 529 to be invested in AAA+ Mortgage Backed CDOs (toxic assets) in 2008. I’m still just getting a handle on what these investments were. Lost 25% his junior year during the financial meltdown.</p>
<p>In the end all worked out fine. Eighteen years seems like a lifetime away. It’s not. It was only a moment ago.</p>