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529 double duty: college plus grad school
Step 4. Figuring out the timing. The timing of this issue is an important consideration. It's far easier to plan for graduate school when it's clear your child will be continuing his or her education years in advance rather than waiting until a decision during the senior year of college.
"If students are certain they are going to grad school, I advise clients to defer 529 distributions as long as possible," says Robert Standish, vice president of financial planning at BPU Investment Management in Pittsburgh, Pa. Doing that, he says, allows those funds to grow for a longer period of time, leveraging your investment and ultimately providing more funds for graduate school.
When you know a year or two before your child starts college -- or even earlier in high school -- that graduate school is a definite possibility, you have more flexibility to plan for it. Depending on the career path your child is looking at, you'll have anywhere from six to 10 years between when you start saving until when you need to spend all the money in the account. This is because your child will have to get through four years of college and a number of years of graduate school -- two in the case of an MBA, three in the case of law school and four in the case of medical school. You can increase your 529 plan contributions, continue contributing while your child is in college and fiddle with your investment mix in an effort to produce higher returns than the 1 to 2 percent that a money market plan provides.
If, on the other hand, your budding doctor or lawyer waits until the freshman or sophomore year to decide to attend post-graduate school, you have less time, but more than if the decision is a last-minute one (read "I can't find a job, so I'm going to grad school). You can still put money into a 529 plan knowing you have anywhere from four to seven years to grow that money before you have to spend it all. Even $50 to $100 a month can make an impact. "A lot of our clients contribute in the $50 to $200 range a month and even over just a few years, it can make a difference," says Hall.
By saving $100 for five years at an interest rate of 3 percent, you could accumulate $6,522.75. And let's face it: graduate school is so expensive that even if you are only able to pay for your child's books, that is less money that he or she will have to borrow or scrounge up through an outside job or fellowship. Textbooks themselves can easily run more than $1,000 a year, even if you buy used textbooks.
Even if this is a last-minute decision, not all is lost. Most graduate school programs run two years or more, so you could save some money the first year or so to spend on the last year or two, or three. Or, you could contribute money to the 529 plan that you plan to spend immediately on grad school tuition, room, fees or board and take it out 10 days later to make use of any tax deduction offered by your state.
Step 5: Seeking funding help. As with college, the advertised price for graduate school is frequently less than most students pay. In their search for talented and committed students, most graduate schools are prepared to help financially with assistantships, loans, grants and scholarships. In addition, many employers will help with graduate school costs.
"My son got interested in fundraising when he was in college at Penn State and was in charge of a large charity to help kids with cancer," says Cocco. "He ended up getting a job at Columbia University in alumni and donor relations and started in the Masters of Science program there in donor and charitable organizational relations. He's going there for nothing because of his job."
Hall, who is attending the University of North Carolina at Wilmington's International MBA program, notes that his program helps with housing in the overseas portion of the MBA program. Still, his costs are running about $15,000 for the one-year program, which is on the inexpensive side for a master's in business administration.
Posted July 10, 2009
Amy Buttell is a freelance writer based in Pennsylvania
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