🐧 How we're planning kid education finances

‍Today, in 5 minutes or less, you’ll learn:

• 📈 Why college might cost $663k in 20 years (and what to do about it)
• 🗺️ How to create education funding flexibility across the US & Australia
• 🎯 The exact strategies, accounts and providers we're using (and why)

FROM OUR PARTNERS

Stay up-to-date with AI

The Rundown is the most trusted AI newsletter in the world, with 800,000+ readers and exclusive interviews with AI leaders like Mark Zuckerberg.

Their expert research team spends all day learning what’s new in AI and talking with industry experts, then distills the most important developments into one free email every morning.

Plus, complete the quiz after signing up and they’ll recommend the best AI tools, guides, and courses – tailored to your needs.

Sign up to start learning.

👨‍👩‍👧‍👦 How we’re planning kid education finances

Would you rather send your kid to an international, local/public, or home school?

That’s a question my wife and I struggle with as an Australian and American respectively.

Recently, I shared my top priorities for 2024 year-end finances.

Planning for kid education expenses is up there.

We don’t know exactly when we’ll have kids, but we still attempted to craft a realistic plan.

We’re grateful to be citizens of the US and Australia, which creates multiple options.

In this newsletter, I share how we researched and crafted a plan for financially supporting our future kid education expenses.

📍 Goals

We started off with creating 3 kid-related financial goals:

• University Education Fund - Our aim is to create optionality for our kid. While it’s difficult to predict the future perceived value of college/university education in 20ish years, we want to avoid the scenario that it’s highly valuable, our kid can take advantage, but our kid cannot afford it. We chose a 529 savings plan.
• K-12 Private Education Fund - We plan to spend several years living abroad, so this fund would cover enrollment in an international school or alternative education program, e.g. Boundless Education. We’re using a taxable brokerage account earmarked for this purpose.
• Childbirth and Living Expenses - We started a sinking fund for pregnancy, childbirth, and kid’s first year living expenses.

The Planning tab of our Net Worth Tracker

Note: This isn’t meant to be exhaustive—just a manageable set of goals to start with.

Also to avoid writing a financial novel, I’ll skip the living expenses in this edition.

Now let’s get into the nitty-gritty of the “how”:

‍

🧑‍🎓 University Education Expenses

How much did university cost for me and my wife?

When I attended Dartmouth as a junior in 2011-2012, the total cost was a stunning ~$55,365 per year.

However, thanks to generous need-based financial aid grants and scholarships, I was able to get the net total cost down to approx. $20,000.

‍

On the other hand, my wife graduated from UNSW in Australia.

In 2012, Economics tuition for a commonwealth supported (aka subsidized) student was $9,425 AUD (~$9,097 USD) per year.

The sticker price difference is kind of mind-boggling. 🤯 

‍

What do we expect future costs to be?

According to Empower’s college savings calculator, here is what US college will cost in 20 years (assumes a 6% growth rate):

• 4-year private: $663k
• 4-year public (in-state): $291k

Brutal.

For Australia, here is UNSW’s estimated tuition cost in 20 years (also using a 6% growth rate):

• 3-year public university (UNSW): ~$163k AUD (~$101k USD) for tuition-only

Reasonable.

Without getting into a debate on US vs Aussie universities, let’s just say that universe of universities will roughly cost between $100k-$600k USD in 20 years. (if the kid attends one at all.)

‍

How much do we want to save?

We want to invest $45k upfront—so it can grow to cover ~$180k of a US college cost in 20 years (conservatively).

This would defray partial costs, which is fine for us given:

• We want to encourage our kid to self-fund university expenses (at least a portion).
• If s/he attends university in Australia, they will likely have access to Commonwealth Sponsored Places (CSP) and HECS-HELP loans which dramatically reduce tuition cost. They likely will not need the funds.
• If s/he attends university in the US, the best private schools generally offer strong financial aid policies (as Dartmouth did). So if they reallllly want to go to a US top-tier school and get in, then we’ll divide up the costs amongst financial aid, our university fund, the kid’s self-funding, and other savings if really needed.

For a mid-tier US university, I’m also skeptical of the value if it’s going to cost $300k+ to attend.

In that scenario, Australian universities would be a strong alternative (but will depend on the kid).

‍

How can we save?

In my research, here are the savings vehicles I found (between me and my wife’s options):

• 529 college savings plan (US): Tax-advantaged account designed to be used for the beneficiary's education expenses.
  • Tax benefits: Tax-deferred growth + tax-free withdrawals.
  • Funding early: You can fund this account even before your kid is born and switch the beneficiary to your kid later (we did this).
  • Backup option: If you don’t used the funds, you can roll over up to $35,000 of unspent funds in a 529 account into a Roth IRA account.
  • Superfund: You can fund upfront up to $95k in 2025 and apply a 5-year gift tax average to reduce the estate tax implications.
  • Use outside the US: Appears possible to be used for non-US/international university that are designated as eligible by the Department of Education.
• UGMA/UTMA custodial accounts (US): Used for any type of expenses, not only education.
  • Tax benefits: In 2024, earnings up to $1,300 are tax-free, the next $1,300 are taxed at the child’s tax rate, and any earnings on top are applied the parents’ marginal tax rate.
  • Financial aid issue: Assets belongs to the kid vs belong to parent (like 529), which impacts financial aid more heavily.
• Private education savings plans (Australia): I couldn’t find a government-sponsored scheme for education savings—but Australia already has plenty of other programs mitigate education costs, e.g. Commonwealth Sponsored Places (CSP), HECS-HELP loans.
  • I discovered a few products advertised as “Education Bonds” with tax benefits but a quick Reddit search turned up some negative reports.

Ultimately, we decided to go with a US 529 education savings plan.

For the provider, we went with a Vanguard 529 account (sponsored by the State of Nevada).

Why?

• Tax benefits. We chose 529 over a UGMA/UTMA due to its tax-advantaged nature.
• Flexibility. In the event the kid attends university overseas (or does not attend university), we liked that these funds can potentially be used internationally and a portion can be converted to a Roth IRA.
• Fees. We chose Vanguard/Nevada because it has low-fees, good fund selection, and it conveniently groups together with my other Vanguard accounts.

‍

🍎 K-12 Private Education Fund

What are current international school costs?

In 2022, the top 25% international school cost in Singapore was ~$25k/year.

Other Asia-based cities like Saigon and Tokyo were also in a similar range.

‍

What do we expect future costs to be?

We anticipate living abroad for a portion of time during the kid’s K-12 years.

This means outside of the US or Australia.

So we’re estimating:

• 6 years of private education expenses
• Starting in 8 years time or later

It’s hard to know exactly where we’ll be, but potentially Asia, Europe, or Latin America.

Using a benchmark of Singapore’s above costs of $25k/year, this would become ~$32k/year in 8 years.

‍

How much do we want to save?

According to this handy FINRA education calculator:

~$16k/year for at least 8 years before the kid starts international school.

Source: FINRA

How can we save?

We will be using a Singapore taxable brokerage for this goal.

While I considered the 529 account, I decided against it because I’m not sure about the eligibility coverage of K-12 international schools.

In Summary

We established three main funds:

• University Education Fund (529 plan)
• K-12 Private Education Fund (taxable brokerage)
• Childbirth/Living Expenses Fund

We’re planning for both US and Australian education options.

University Fund:

• Targeting optionality between US and Australian universities
• Expected cost in 20 years: Between ~$100k-$600k
• Investing $45k upfront in a Vanguard 529 account

K-12 Fund:

• Targeting 6 years of international schooling
• Expected cost in 8 years: ~$32k/year
• Investing $16k/year for 8 years in a taxable brokerage

What do you think? Are we underinvesting or overinvesting for education? Hit reply and let me know.

🌐 Beyond your borders

🧑‍🎓 WSJ: “Twenty-three percent of job-seeking Harvard M.B.A.s who graduated last spring were still looking for work three months after leaving campus. That share is up from 20% the prior year, during a cooling white-collar labor market; the figure was 10% in 2022, according to the school.” The MBA value prop is continuing to get tested in this market. What’s crazy? # applications also skyrocketed.

🤓 Attention Tax Nerds: Here is how to pay zero or nearly zero in taxes during retirement. This was something I definitely wish I took advantage of to step-up my investment cost basis during my sabbatical/underemployment years.

🕹️ If your goal is diversifying income, then I’m a fan of expertise-based side hustles vs chasing a passion. However, I recognize that side hustles are also about enjoyment. This story of a Singaporean turning his passion for building retro arcade machines into a side hustle was dope.

🧠 Social snippets

I have lived in San Francisco, Singapore, and Mexico City. Here is what I think are the most overrated parts of building a global career.

For daily insights, follow me on Linkedin or Threads.

FROM OUR READERS

What do you think of this edition? Reply or rate it at the bottom of this email.