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A lot of our NWP conversations are with couples staring down the college years, trying to figure out how much to save, how to talk to their kids about cost, and whether they’re doing this right. The numbers keep getting bigger, and if your kids are further out, the compounding cost sounds scary.
For example, a year of undergrad, including tuition, room, board, and fees, puts you around $42,000 a year.
Now, let’s pretend you have 3 kids between 8 and 12. Penn State’s tuition tends to increase around 4% a year. It could always jump, but let’s use averages. That means in 10 years, your college bill looks like:
- ~$61K per year (with tuition rising each year)
- Times 4 years
- Times 3 kids
- Equals about $732,000 all in
What the heck?
Now, even if you’re a family making $300K or more a year, that’s a big number. Layer in the need for retirement savings and future home renovations this becomes a challenging conversation.
I’m a big believer that if you want to do something well, talk to those who have already done it well. That’s why I’m happy to bring a special guest to share his experience with you today. Meet Owen Mulhern, a founding partner of the New Wealth Project and a veteran dad.
Owen has five kids, ranging from a recent college grad to a high school upperclassman. Here’s what he told me. What’s below are my questions and his answers.
What’s Your #1 Piece of Advice for Saving for College?
While Owen is certainly excited for his fifth child to get beyond tuition bills, his experience has been more positive because of one key decision: they started saving early.
“Honestly, we started saving the day my first daughter was born. I was already in this business, so I understood the math of compounding early. There’s never a bad time to start, even if that means starting small. If your kid is five, start. If your kid is fifteen, start. The number doesn’t need to be big on day one.”
How Do You Talk to Your Kids About What You’ll Cover?
“We treated the whole thing like a business conversation,” he said. “If a school cost $75,000 and we could fully cover a $45,000 option, we told them plainly: the difference is on you, and here’s what that debt looks like with interest. We weren’t telling them not to go. We were showing them the math so they could decide with the numbers in front of them.”
For some of his kids, that conversation mattered more than which school had the better mascot.
In my experience, many of the more stressful conversations around college are less about how expensive college costs and more about what spouses and kids expect about funding. The ROI conversation is a great one to help get expectations on the same page vs. arguing over value after a great tour weekend.
How Do You Help a Teenager Understand What Debt Feels Like?
That said, when was the last time you thought a teenager really understood the student loans conversation? Explaining the sticker-price gap between two schools is one thing. Getting a seventeen-year-old to feel the weight of a loan payment is another.
“A parent telling them debt is hard doesn’t usually land the way you hope,” Owen said. “What landed for my daughter was hearing it from someone a few years out of college. Someone having a hard time getting an apartment she liked due to her debt sounds very different than someone who is debt-free, got a great job, and easily found an awesome apartment with their best friend.”
His advice: find your kid a near-contemporary, a cousin, a family friend, someone just a few years further down the road, and let that person do the talking. Not a formal sit-down, just a conversation about what a loan payment does to a paycheck, or what it felt like to start adult life without one.
“Sometimes the best financial education doesn’t come from us,” Owen said. “It comes from someone close enough in age to be believed.”
It costs nothing, and it often does more than a lecture from a parent ever could.
What Was Plan B for Unused 529 Money?
This is one of the big questions I hear, as there’s a lot of opinions around 529 accounts. Is that money stuck forever if it goes unused?
Under current federal rules, 529 accounts carry more flexibility than most families realize:
- If your child gets a scholarship, you can withdraw the equivalent amount without the usual penalty.
- You can use 529 dollars for many private schools, trade schools, master’s programs, and other educational endeavors.
- If there’s money left over, you can roll it to a sibling’s 529 instead.
- If it goes completely unused, up to $35,000 can convert directly into a Roth IRA for the beneficiary, under current rules.
Owen and his wife have navigated many of these scenarios, with one child going to cosmetology school and two becoming student athletes. In fact, Owen’s daughter has begun to execute the Roth IRA conversions from her unused 529 savings. “Instead of that money going to waste, my daughter now has a tax-free retirement account started at 24 that will compound for the rest of her working life,” he said. “I didn’t plan for that specific outcome. I just kept saving, and the flexibility was there when we needed it.”
Again, to emphasize…
- That money went in tax-free for 529 savings
- Up to $35,000 of that money gets rolled into a Roth IRA
- That is retirement money sitting in a 22-year-old’s account with a 40+ year runway
- And when it comes out, it’s tax-free as a Roth
Between the long runway for potential compounding and the fact that it’s tax-free on the way in and the way out… It’s hard to be nervous about unused 529 funds.
Any Final Advice?
“Start before the timeline feels urgent,” Owen said, “and have the cost conversation with your kids earlier than feels comfortable. You can borrow for college, but you can’t borrow for retirement. Don’t let the college years compromise the plan you’ve built for yourselves in the process of doing right by your kids.”
So: how much to save, how to talk to your kids about it, and whether it has to cost you your own retirement. Owen’s answer to all three comes down to the same idea: start early, be honest with your kids about the numbers, and know that these accounts have more flexibility built in than most people plan around.
If you want this kind of clarity for your own family, book a conversation. We’ll build the plan together. Contact Us – The New Wealth Project
***Not intended as a recommendation or offer of any specific advice or services. All investments carry risk, and past performance does not guarantee future results. For detailed information about our fees, services, and background, please view our regulatory disclosure materials on the SEC Investment Adviser Public Disclosure Website (https://adviserinfo.sec.gov/firm/summary/170478).