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Five Twenty Nein

Baby Ninja decided to stop being a fetus ten months ago when he graced us with his presence last June. The second he breached the birth canal he forced Girl Ninja and I to start thinking about his future. The numbers 5-2-9 were no longer a sequence of three random numbers, but one of many ways Girl Ninja and I could begin saving for Baby Ninja’s future.

Apparently there is a good chance this human of mine could one day decide to go to college. Kinda like his mom and dad decided to do.

Oh crap. 

It was easy when I went to college. I just asked my parents to pay for part of it. My college to give me scholarship money. And the bank to loan me money. Easy peasy.

But now, here I am, 18 years away from potentially having the roles reversed.

Girl Ninja and I had to ask ourselves a question most parents do…

Should we start saving for college for our children? 

A few of the most popular ways to do this are:

Educational savings account- a tax free way to invest money for your child’s future education expenses. Could be used for K-12 as well.

529 Plan- similar to the ESA, has higher contribution limits, and no income phase out

Get Account- Washington’s 529 plan that guarantees your investment will keep pace with tuition increases. Basically you lock in today’s college prices for your child. Imagine if your annual tuition payments today were only $2,000 or so like they were 18 years ago. 

I’m sure there are many other options I am not aware of, but I don’t care to research or learn about them for one simple reason.

Girl Ninja and I have decided we aren’t going to save for Baby Ninja’s college. GASP!

That makes us like the worst parents in the world, right?

We came to this conclusion after considering the following things:

I’m a tuition bubble believer. 

The tuition increases we’ve seen over the last decade are unsustainable. If tuition continues to inflate 7% or more a year for the next 18 years, college will be so expensive that only the countries richest will be able to afford it. This bubble, like all bubbles, will eventually burst.

I’m not saying Baby Ninja’s tuition wont be more than it is today, but it will either be so expensive it would make no sense for him to go to school. Or, as I expect, the bubble pops at some point during the course of his youth, and future tuition increases are more in line with inflation (3%-4% per year).

The internet is a beautiful thing.

The internet literally makes life cheaper. Amazon forces retailers like Best Buy and Target to be more competitive in their pricing. I also expect the internets ability to provide access to information at little cost to have a dramatic effect on college costs over the next decade or so. Online schooling is still a relatively new thing, but twenty years from now, it will be so normal that brick and mortar universities will be forced to rethink their costs. Why would I go to University of Washington and pay exhorbinant fees, when (insert other college’s name here) is offering online courses for a fraction of the cost.

I expect this will also happen with real estate commissions. You hear that real estate agents. Your days (probably more like years) are numbered. Why should Agent X get a $3,000 paycheck on the sale of a $100,000 property, when Agent Y would make $30,000 on the sale of a $1,000,000 property. The work load is the same in either case. Fee for service will become the industry standard. Unfortunately, it’s gonna take a while before this shift happens.

Americans want their cake and to eat it to.

Much like the Affordable Health Care act has brought health insurance to the majority of Americans. I expect over the course of my lifetime politicians will socialize education. We recently saw Obama state community college should be “as free and universal as high school”. Expect the government to reform education.

What if Baby Ninja doesn’t want to go to college. 

Much like withdrawing early from a retirement plan, if your child decides not to go to college, you will be penalized for withdrawing your investments from a 529 plan for things other than education expenses. This isn’t a huge issue for me, but is still a concern.

Baby Ninja can pay for his own darn school.

I graduated college with $28,000 of student loan debt. That was above the national average for my graduation year. While being in debt was not a ton of fun, it taught me to appreciate money more and the importance of managing it. I don’t want Baby Ninja to grow up with a sense of entitlement. Maybe we will have so much money in the future we can pay for four years of Ivy league education for him. Or perhaps we will have a series of unfortunate events that will hinder our ability to help him financially. Either way, I want him to grow up knowing that nothing in this world comes free.

I’m happy to forfeit the college savings plans’ tax breaks.

At the end of the day, I just want options. I feel like the college savings plans are too specific and limited for me to commit a significant amount of money towards them each year. Instead, Girl Ninja and I plan to save for Baby Ninja’s college through general wealth building practices.

As you know, we have a taxable investment account. This is where we have been putting all of our discretionary income. As we grow this account, via contributions and investment appreciation, we should have enough money available to pay Baby Ninja’s tuition bills when they come due. What the taxable investment account lacks in tax savings, it makes up for in flexibility.

So there you have it. These are the reasons Girl Ninja and I have no sense of urgency in starting to save specifically for Baby Ninja’s college expenses.  Will he go to college? Probably. Will we have the financial capacity to help him? Probably. Is the 529 appealing to me? Probably not.

What say you? 



  1. I agree! I should clarify that we are “saving” for our kids college it is just in our ROTH accounts. This way if our kids get scholarships or don’t want to go to college the 529 isn’t a bust.

    Interesting about realtor commissions. We just bought and sold with the same realtor…crazy the percentage she got when our house was on the market for 48 hours.

  2. I’m glad I’m not the only one! Sometimes I feel like a bad parent for not saving, but I feel exactly as you said: I’ll help out as much as I can, I graduated with debt and am fine, and I believe that generic wealth-building strategies are the best (not college-specific). Thank you, Ninja!

  3. Hoping to have 200k accumulated per kid for high school and college. I do agree with them having some sort of loan toward the end that they have to pay off so they can learn to appreciate, manage, and budget money down the road.

  4. I was so sure both of my boys would go to college… Worked on saving some, but readying them for grant searches etc too. In the end, boy1 decided that wasn’t for him and boy2 ‘wants’ to but has no idea what he wants and won’t go until he has that idea.. (so, probably never *grin*)

    So, yeah — I see post tax savings as very viable for you, as well as making sure you are up-to-date on all the unusual grants and scholarships out there. (Like the “tall persons” grant)

  5. I agree, looking at the increase tuition cost over the next 18 years, you’s need to make a pretty penny in salary to enjoy a ROI on the college degree. With 3 children hitting college over the next 2-5 years we are saving in 529s. We want to help them, as well as have them hustle during summers and break to pay some of their own costs.

  6. I feel the same way. Plus you know some research shows that kids that have jobs (under 20 hrs/week) actually do better in school. . .
    I am not stressing about college costs either but with a twist – my kids aren’t allowed to take out student loans. (Neither was I.) I will help but they must have A LOT of skin in the game for me to do so. Hard to skip class when you’ve written the check yourself. My kids are 7 and 8. I have some time, but they have heard from me that they’ll have to get jobs to help pay for it . . .

    • Genuine question here… would you really be able to prevent them from taking out a loan?

      I can see how it would make sense to educate your kids about the cost of borrowing, and dissuade them from that choice but to prevent it?…I’m just not sure you can.

  7. Ah it seems I am the first to disagree here! With the arrival of our no-longer fetus a few weeks ago, I explored the 529 in detail and came to the conclusion that the tax breaks, generous contribution limits, and ability to withdraw contributions tax free make the 529 a FAR better option than a taxable investment account.

    Vanguard runs a solid 529 and is the only place I would consider opening an account, even if I lived in a state that had an income tax. Vanguard’s low fund fees and general awesomeness are where I will be parking some 529 $$$.

    You can withdraw penalty free if baby ninja gets a scholarship or a free ride. The tax reporting on it is super easy as well. Ultimately, the little ones can pay for college themselves, but I don’t think this bubble will burst any time soon. The cost for college is ridiculous, but not being able to discharge student loan debt shows you how much the government is committed to protecting insane higher education costs.

    Check out the post and we will see how convincing my writing is =)

    • I don’t know how you can think the bubble won’t be bursting soon. It seems impossible that it won’t.

      Let’s say the average state school tuition runs $15k year today. 18 years from now that same education would cost $40,000. That’s after adjusting for inflation.

      At the end of the day it’s a simple supply and demand curve. As college expenses increase, fewer will be able to afford attending, as fewer attend, tuition costs will lower.

      I get that any one of my points might not stand on its for the near term (5-10yrs) but I’d bet a million dollars things drastically change over the next 20. Just think about the internet circa 1997 and the Internet of today. Add another 18 years to this equation and I’m confident online education will be an affordable and respected option. Just like online banking is now a common thing.

  8. I think the 529 plans are still a smart idea.

    The tax savings alone are great (I’d rather have the money in a savings account for college than going to my state government). The savings also can pay for a LOT more than just traditional college — private elementary/middle/high school, trade schools, technical schools, beauty schools, etc. They can be used for graduate school if your kid manages a free ride to college.

    And, if your kid decides higher education of any sort is not in his interest? You can TRANSFER the account to other family members — siblings, grandchildren (you could pay for private elementary/middle/high school, or their college/graduate education), nieces/nephews, etc. Wouldn’t it be nice to bequeath your grandchildren a free education?

    And, there’s no rule that your kid can’t still take out loans/have a stake in their education — you could still require them to take out loans for books or room/board, or otherwise incentivize them to “buy-in” to their education, even if your 529 plan pays the majority of the costs.

    Your mileage may vary, but I’m planning on saving PLENTY in 529s to pay for as much of my kids’ higher education as I can…..having to fight against insane student loans from law school (and the sacrifices those have meant in terms of career choices/deferring buying a house, etc.) makes this a very personal goal for me.

  9. In my opinion there is no other place in personal finance where one’s cultural orientation or value system bleeds through as much as choosing (or not choosing) to pay for a child’s college education. It seems more often the case that those who didn’t have parents footing the bill are inclined and comfortable to pass along the financial task to their own offspring. It’s the “what worked for me, will work for Junior”.

    Okay, sure.. but why the need to justify and defend your decision.. what about it makes you feel (if ever so slightly) uneasy?

    Hmm… I have an idea…

    A few years ago I had to take an intercultural communications course at Bellevue College which was basically nothing more than a quarter long introspective work on identifying the key components of one’s particular cultural make-up. Nothing of that exercise surprised me more than tuning into my Jewish ancestry and how it has very much affected my core values, specifically, the value and importance of educational achievement. Having been raised agnostic deep under the Bible Belt I had never had the chance to appreciate my Jewish traits… but they were there all along, I just simply never knew it. In the course we learned that although Jews only make up .25% of the world’s population, they have had a disproportionate amount of influence and presence in many areas of academia.. hard sciences, social sciences… Hollywood 🙂 In my own family line I have descended from writers, professors, diplomats and even a 17th century physician of a king 🙂 In many Jewish families fostering academic excellence is the supreme objective. I suppose that trait has passed down through the generations because the choice to pay for college was never an option for my grandparents, it was never an option for my parents and it’s not an option for my husband and I. My husband doesn’t have Jewish ancestry at all, but he comes from a highly affluent class in Mexico. There, as well, education is important. It’s so important that his uncle, a pediatrician, actually collects miniature representations of everyone’s diploma and keeps them on his desk like a stack of business cards. When my husband finished his PhD, the uncle approached him, said congratulations and made the request to photocopy the degree -for his collection, of course.

    Providing a college education can preserve family wealth and prestige. Not having to accrue debt was THE determining factor in whether we started out as middle class or upper middle class. And I really don’t care about sense of entitlement. For the simple fact that they are my biological offspring my kids are very much entitled to obtain as much educational experiences as they wish. It’s exactly what I wrote above, “what worked for me, will work for Junior”.

    • This is a very interesting post. Thank you for taking the time to write it – i have not seen the idea behind paying (or not paying) for a child’s tuition vocalized in this way. It hits home for me, as like you there is no question of whether or not I will fund education. I will bottom line. I do not want money to be a factor in my child deciding whether or not to attend school or which school to choose.

  10. Pretty sure that any penalties you might pay would only be on gains. You don’t pay on what you put in and if there are losses, I don’t think you would pay.

    If 529 plans are too limiting but you still want to save, why not just open a plain old investment account and put in what you think is right. Yeah, it’s after tax, but it could still add up to a good amount, plus it gives you the flexiblity to make the investments you want or to just let it sit in cash if you really think the market is going to take a dive, and if he doesn’t go to college or gets a scholarship, it’s yours to do with as you see fit.

    I don’t think it’s an all or nothing option, is my point.

    • Agree with the taxable investment option. Which is why I wrote…

      “As you know, we have a taxable investment account. This is where we have been putting all of our discretionary income. As we grow this account, via contributions and investment appreciation, we should have enough money available to pay Baby Ninja’s tuition bills when they come due. What the taxable investment account lacks in tax savings, it makes up for in flexibility.”

      • I don’t get the American culture. Why do parents pay for their kids’ college education? Did your parents pay for yours? I don’t think they did, which is why you had student loans.

        I, like you, put myself through college by applying for scholarships, taking out loans, working part-time, etc. I say- let baby ninja pay for it by taking out loans. Maybe help him pay for it when he graduates and is looking for a job. Once he has a job, he should be able to pay back those loans.

  11. We have been putting 350 / month in a 529 for our daughter since she was 2 months old. The idea was we are fortunate enough to be able to help and still max out our retirement accounts and then some, which was our primary goal. I understand putting your retirement first because as they say, there are no “loans” for retirement like there are for education. We figure a little bit now should add up over 18 years, and not necessarily require contributions the entire time. Our goal is to help, not cover everything unless the account happens to grow enough. She has 4,600 so far and she is 15 months old. Lucky little girl.

  12. I am all about the 529. I invested very little for my daughter when we still had school loans, but we paid them off when she was 2 and have since put in the maximum a married couple can invest without paying a gift tax ($28k a year). She is now 4 and has $51k so far, $5k of which are market gains that will never be taxed. That’s like a $5k scholarship for a kid whose parents will be millionaires by the time she goes to college. I love America. (There’s a little sarcasm there — I think 529 plans tend to be regressive and that they perpetuate the elite, but because I do not share your optimism that cheap, online education will open the same doors as the country’s top schools in 14 years, I will continue to invest.)

    • 28 plus 28 equals 56 where I’m from so I don’t understand your math, or comment about market gains. Either way, 51k is a lot of cash so props to you guys for thinking ahead. You are working with ivy league tuition there.

  13. I enrolled in running start at Highline Community College when I was a junior in high school. That was 2 years of free tuition for me and I later went on to a state university and received my bachelors at the age of 19. My student loans were much less than the American average. I am saving a minimal amount in my oldest son’s 529. If he shows me the same dedication to school and enrolls in running start then I will pay for the remaining two years of his tuition at a state school so he will leave college debt free. If he decides not to go to school, then I will use those funds for our youngest son. Also, I will have paid off the mortgage by the time my youngest is a senior in high school.

  14. I am no financial aid wizard, but how would having all your assets in a taxable account effect your child’s financial aid? I know the 529 counts at like 5% for the Expected Family Contribution, but what about the taxable account?

    By not saving in a 529 you could potentially be hurting your child’s chances at financial aid. Just a thought.

  15. No one can predict the future so who knows what higher education will look like in 18 years. I agree that the outrageous tuition increases must cease. Part of the reason for the increases, IMO, was the push for students to take out student loans. “Don’t let lack of funds stop you from pursuing your college dreams”. If I had a nickel for every time we heard that line at college fairs! Perhaps all the negative press these students loans are now getting will make students stop and think again. There are ways to get a degree without breaking the bank. Maybe not that aforementioned dream school but….

  16. My question is would you be willing to help pay for some of Baby Ninja’s education, so that he/she can take a smaller loan? Having loans is a great hindrance especially when richer peers usually enter the working world without loans, more connections, etc…

    I also remember a friend whose parents did not pay for her education but their savings/income were factored into her financial aid. She got very little aid but got zero from her parents.

    • Of course. That’s why I said “As you know, we have a taxable investment account. This is where we have been putting all of our discretionary income. As we grow this account, via contributions and investment appreciation, we should have enough money available to pay Baby Ninja’s tuition bills when they come due. What the taxable investment account lacks in tax savings, it makes up for in flexibility.”

  17. Our first little one is just a few months older than yours! I had written off the idea of college specific saving for him, mainly because I had to pay for my own college and it has definitely helped shape my financial outlook. We also have a taxable account that I figure can be used for any long-term savings goals (such as college or a mission for our church), but we reserve the ability to use our judgement when the time comes.

    Lately I’ve been reconsidering. Our financial situation is a 180 from my parents, who were bankrupt and divorcing. I was able to get grants and subsidized loans, while my children will not be eligible due to our relatively high income and savings. So I think I might bite the bullet and put a reasonable amount in a 529. Our kids will be encouraged to start at community college and work part time if they don’t get scholarships, but I think they still may need a little assistance to finish college in a reasonable amount of time without huge debt.

  18. I started the boys’ RESP (Canadian) far too late and ended up with only about $20 000 in there between them both. DS1 headed off to the US for college this past fall and even with his partial scholarship I am overwhelmed with college costs. DS2 starts this fall. For DS1 he can’t work down there and his window here at home is only about 8 weeks total for the summer. Whatever he earns will just be a dibble in the big picture.

  19. We are putting some money into an RESP (Canada) and whatever we put into the account for the kids the government matches 20% up to $500 per calendar year. If they do not go to school we would lose the government match portion but since we have it set up as a family RESP if one does not go to school we can transfer the funds to the other.

    When I went to school my parents paid my tuition, I had to pay for my books and supplies as well as my car and insurance. I did have loans when I finished school still but not nearly as much as it could have been I think around $15K, and would have been less if I was a little smarter with my money.

    My wife was the opposite, Her oldest sibling went to school and partied and dropped out, after that the rest of the kids were on their own to pay for school.
    When she finished school she had almost $50K in loans and was working 2-3 jobs while she was in school just to cover her expenses.

    We want it to be somewhere in the middle. They will need to have a job but we will help with some of the expenses so they hopefully do not need to take out any large loans to get through school.

    We started Contributing for each when they were born and I am estimating we will have about 20K for each of them when they are ready to start school. We may up our monthly contribution down the road but not until we are better set in our path to pay for our retirement first.

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