Last week, Simply Money Expert Nathan Bachrach met with the Ludwig couple who need some help mapping out saving strategies for some big financial goals. They have a difference of opinion about paying for their children's college.
I feel like it's my obligation to definitely pay for it if I can, and it upsets me to know that I might not be able to," said Jane Ludwig.
"It doesn't upset me as much," said Mr. Ludwig, "I'm a realist. I know that what if they don't want to take a path that requires an eight year education or a four year education."
The Ludwig's kids are 13-years-old and 9-years-old. Their 13-year-old daughter is a great student who wants to be a scientist. Jane Ludwig says that means that college is definitely in her future.
"So we did open up a 529 plan for both of them," said Jane Ludwig, "We put $5,000 away."
That $5,000 will not go far, especially since their daughter may be attending parochial high school.
"So if we decide to send her to a nice $7000 high school, that's not going to leave anything for saving for college," said Jane Ludwig.
That may not leave much room for their other goal, having the money for retirement.
"I don't want to work until I die," said Jane Ludwig, "So I'm saving for retirement."
While there are plenty of loans and scholarships out there, there is no financial aid for retirement.
"We talked about that, because like I said, I had to go out and pay for it myself," said Mr. Ludwig, "If we can, we can, but I don't want to live in a trailer, either."
The Ludwig's made a good move by opening the 529 plans for their kids. The upside of 529 plans is the tax benefit. The assets are tax-exempt, if used for qualified higher education expenses.
The downside is they can affect your eligibility for financial aid, since 529 plan money is counted as parental assets, if the parents opened the account. In the financial aid formula, parent assets are assessed at rate of 5.64 percent and they are not without risk. Many 529 owners saw their plans' assets cut in half during the big stock market drop a few years ago.
There are also custodial accounts, things like "Utmas" and "Ugmas," those are "Uniform transfers to minor act." These accounts are in the child's name, with an adult named as "custodian." The downside to these is that college considers them to be the students' assets, which can really work against them in financial aid decisions.
There are also pre-paid tuition plans, offered by individual states. They sound great, but many have run adrift in the last few years. Six states' plans, including those in Ohio and Kentucky are closed to new investors.
Another option, Coverdell accounts, can contribute up to $2,000 a year for higher education expenses. They can also be qualified elementary and secondary education expenses. The contributions are not tax deductible, but the assets grow tax-free.
Whatever your family chooses, when your kids are young, having the money in stocks should mean a higher rate of return. As your child gets closer to college, you will want more of that money in cash to reduce the risk.
The important thing to remember is you can pay for some of your child's college and they can get loans, a job or both to pay for the rest of it.
There are also tax credits and deductions you might qualify for.
Copyright 2011 FOX19. All Rights Reserved.