Advice re underfunded college savings & well funded retirement

[Anonymous]

I think we are in an unusual situation. Would appreciate any advice, even referrals to professional advisors.
We can fund $30 - $35k year from current income and savings. Issue is if kid is accepted to reaches with no merit aid, w/ annual all-in fees of @ $70 - $80k, leaving a gap of @ $45k per annum over the $25k - $35k we’d pay for in-state or schools w/ merit awards. We are steering kid to in-state and colleges with merit aid but kid is applying to our prestigious alma maters that do not award merit aid. We went through as first gens who worked & self-paid plus received generous financial aid, loans, and scholarships. We are part of the small % of Pell Grant recipients who made it into the upper middle class.

Issue: lack of immediate access to funds for class of ‘20 and class of ‘25 freshmen, low cash flow, but solid long-term assets

Ages/Work/Retirement: 58 ($160k annual income & 56-year-old on disability)

Retirement savings: $2M in 401ks, TSP, and IRAs; plan to retire a few years after kids finish college, about age 70

Home equity: $500k, $300k mortgage (refinanced due to issues with disabled spouse)

Other assets:
1) rental property with $250k mortgage, $600k equity (rental income pays all house expense, mortgage, maintenance, etc. plus @ $5k profit)
2) other savings/ stocks $40k

529 Funds: $6k

Major expenses: @$70k yearly for high medical bills - @ $30k is deductible on taxes, other out of pocket; special schooling and therapies for kid - $35k year

Options considering:
1. Sell primary residence, move to a rental and use proceeds for additional college expenses at private;
2. Rent primary, move to rental home and working spouse rents room near work M- Thursday — this would decrease monthly expenses as rental is in lower cost stars, would also decrease tax liability
3. Borrow against TSP (but these funds are limited to $50k, also question ability to repay funds while kids are in college)
4. Withdrawal from 401k / IRAs of 56-year-old spouse but funds in IRAs (@$80k) would only cover @ two years of extra fees at private school; there are also taxes on earnings withdrawn
5. Take short term loan that would be repaid after retirement when we can access retirement funds in 401ks - do commercial options exist? Might be able to borrow from friends / family who have offered in the past but we have never accepted
6. Consult with FA office at alma matters before applying regarding a private loan similar to #5, one that would be paid back in our retirement years when we will earn more than we do now. We included colleges in our wills years ago, colleges do not know amount, they will receive a % of our estates ; we also donated in the five figures years ago before disability.
7. Apply and then consult if DC accepted
8. Take home equity line (have one in place)
9. Any other creative options - could we pre-sell home and rent back?

Thank you.

[Anonymous]

Sell the rental property and use the proceeds for college expenses. Or just sell the rental property already. $5000 a year in profit isn’t worth it.

[Anonymous]

PP here. Also, keep your fingers crossed that your kid doesn’t get in to one of those reach colleges. There is absolutely no need to pay that much money for college, especially in your financial condition. It’s a crazy decision.

[Anonymous]

You need to tell your kid you cannot afford the reach schools. Hard stop. Your budget for college is $30k. Your kid should now this. He/she needs to work within that budget or figure out how to pay the delta themselves.

[Anonymous]

So you have about 16 months before your first starts school and five years before the second? Stop all retirement saving now and pad that 529 while you can. You may actually get some aid considering your spouse's high medical needs. Then do a cash out refinance or home equity loan to cover the gap.

[Anonymous]

Correcting my typo: *know not now.

[Anonymous]

Anonymous wrote:PP here. Also, keep your fingers crossed that your kid doesn’t get in to one of those reach colleges. There is absolutely no need to pay that much money for college, especially in your financial condition. It’s a crazy decision.

I know! Believe me I am doing that!

[Anonymous]

Any chance those medical bills will be any lower in the future? Or is that pretty much guaranteed? That's where all of your money is going.

[Anonymous]

Anonymous wrote:I think we are in an unusual situation. Would appreciate any advice, even referrals to professional advisors.
We can fund $30 - $35k year from current income and savings. Issue is if kid is accepted to reaches with no merit aid, w/ annual all-in fees of @ $70 - $80k, leaving a gap of @ $45k per annum over the $25k - $35k we’d pay for in-state or schools w/ merit awards. We are steering kid to in-state and colleges with merit aid but kid is applying to our prestigious alma maters that do not award merit aid. We went through as first gens who worked & self-paid plus received generous financial aid, loans, and scholarships. We are part of the small % of Pell Grant recipients who made it into the upper middle class.

Issue: lack of immediate access to funds for class of ‘20 and class of ‘25 freshmen, low cash flow, but solid long-term assets

Ages/Work/Retirement: 58 ($160k annual income & 56-year-old on disability)

Retirement savings: $2M in 401ks, TSP, and IRAs; plan to retire a few years after kids finish college, about age 70

Home equity: $500k, $300k mortgage (refinanced due to issues with disabled spouse)

Other assets:
1) rental property with $250k mortgage, $600k equity (rental income pays all house expense, mortgage, maintenance, etc. plus @ $5k profit)
2) other savings/ stocks $40k

529 Funds: $6k

Major expenses: @$70k yearly for high medical bills - @ $30k is deductible on taxes, other out of pocket; special schooling and therapies for kid - $35k year

Options considering:
1. Sell primary residence, move to a rental and use proceeds for additional college expenses at private;
2. Rent primary, move to rental home and working spouse rents room near work M- Thursday — this would decrease monthly expenses as rental is in lower cost stars, would also decrease tax liability
3. Borrow against TSP (but these funds are limited to $50k, also question ability to repay funds while kids are in college)
4. Withdrawal from 401k / IRAs of 56-year-old spouse but funds in IRAs (@$80k) would only cover @ two years of extra fees at private school; there are also taxes on earnings withdrawn
5. Take short term loan that would be repaid after retirement when we can access retirement funds in 401ks - do commercial options exist? Might be able to borrow from friends / family who have offered in the past but we have never accepted
6. Consult with FA office at alma matters before applying regarding a private loan similar to #5, one that would be paid back in our retirement years when we will earn more than we do now. We included colleges in our wills years ago, colleges do not know amount, they will receive a % of our estates ; we also donated in the five figures years ago before disability.
7. Apply and then consult if DC accepted
8. Take home equity line (have one in place)
9. Any other creative options - could we pre-sell home and rent back?

Thank you.

We didn't permit our high-performing kids to apply to schools that we could not afford.

We are about your age with similar assets, but our house is paid off.

You don't have to, and should not spend $300K after-tax dollars on their undergraduate education.

[Anonymous]

Anonymous wrote:Sell the rental property and use the proceeds for college expenses. Or just sell the rental property already. $5000 a year in profit isn’t worth it.

Yep. This is what I would do.

[Anonymous]

Anonymous wrote:So you have about 16 months before your first starts school and five years before the second? Stop all retirement saving now and pad that 529 while you can. You may actually get some aid considering your spouse's high medical needs. Then do a cash out refinance or home equity loan to cover the gap.

Thanks. We are already just contributing the min to get max match, but maybe better to stop completely as you suggest. We will not get any aid, period - the rental kills that possibility. Yes, I’ve tried to get agreement to sell it for many years — spouse disagrees. Also tried to fund 529s - spouse disagreed, wanted to max retirement since we can’t borrow for retirement.

[Anonymous]

Do you have health insurance? why are your medical bills so high?

[Anonymous]

Anonymous wrote:Any chance those medical bills will be any lower in the future? Or is that pretty much guaranteed? That's where all of your money is going.

Unfortunately it doesn’t look that way; just got another poor prognosis yesterday which perhaps motivated me to write this post.

Kid does not understand reality; will reach out to school college counselor.

[Anonymous]

Anonymous wrote:

Anonymous wrote:So you have about 16 months before your first starts school and five years before the second? Stop all retirement saving now and pad that 529 while you can. You may actually get some aid considering your spouse's high medical needs. Then do a cash out refinance or home equity loan to cover the gap.

Thanks. We are already just contributing the min to get max match, but maybe better to stop completely as you suggest. We will not get any aid, period - the rental kills that possibility. Yes, I’ve tried to get agreement to sell it for many years — spouse disagrees. Also tried to fund 529s - spouse disagreed, wanted to max retirement since we can’t borrow for retirement.

Now you have enough for retirement. Sell it.

[Anonymous]

Anonymous wrote:Do you have health insurance? why are your medical bills so high?

Many treatments are out of network; fewer and fewer docs participating in plans and / or treatment is too specialized.