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Do We Need College Savings?

Shelly says her husband transferred his G.I. Bill to their kids. Shelly wants to know how to pursue Baby Step 5 at this point.

QUESTION: Shelly in Norfolk says her husband transferred his G.I. Bill to their kids. They’re eight and five, and Shelly wants to know how to pursue Baby Step 5 at this point. Dave tells Shelly what he would do in her situation.

ANSWER: If it is then what it is now, if the government doesn’t change it, which would be the first time in history they’ve done that, your kids’ college is paid for—completely. That’s the benefit. It’s huge. That’s wonderful. You can’t go to Harvard, but they’ll get enough of a stipend and they’ll have tuition and stuff covered they’ll be fine.

The question is how much do you save in case the government goes through huge budgetary cuts and one of the things is they renege on that promise? I think the way I would prepare for stuff like that is just go get rich. Since you don’t have to fund college, you can become wealthier. Whatever you would’ve put in a college fund, you don’t have to do anymore. You can now just put that in mutual funds. You’ve got a pile of money over here in mutual funds that you would not have had if you’d had to save for college. Then if there’s a problem, you use that and send them to college.

I would just continue on and knock out the house. When the house is knocked out, you just start saving like crazy and become very wealthy. Let’s say that you do a medium job and all that happens is your house is paid for and you fund your Roth IRAs and stuff. You’ve got some money in retirement and your house is paid for. You’re making a normal income, and then the G.I. Bill blows up, and you’ve got to pay for college. You can cash flow it because you don’t have a house payment. But that’s a medium job. If you do a good job, you’ve got $500,000 in this account plus a paid-for house.

Here’s what happened to us. My kids grew up, and I didn’t even use their college funds for college. I didn’t need to. They went to state colleges. I make good money. I don’t have any bills. I just wrote the checks. I never even tapped their accounts, so when they got married, I just handed them their college funds, which gives them a boost and a start off into the next thing. That’s where you’re headed.

We weren’t in 529s because we didn’t qualify for ESAs or 529s. We make too much money. You can’t do them. Mine were just in mutual funds, but they were in the kids’ names. It’s called an UGMA account—Uniform Gift to Minors Act. I just dumped the money into the kids’ names, and I just left it in their names. I paid the bill and gave them the money that was in their names when they got married.

I’d just quit adding to your 529s. You may not need them, and then the money is trapped in those things. Just go get rich, and then if you need the money because the G.I. Bill crashes, you’ll have the money. And you will be because you’re thinking about this stuff. You’re thinking about it and saving and planning. That’s how people get wealthy. They don’t get wealthy on accident. People who get there are the ones who worked their butts off for 20 years, and now they’re an overnight success. That’s how they get there.