Saving for College - What is the Best Approach?

[Kanto]

After finally finishing the process of setting up a Junior Nisa for my 5-month-old son, I started thinking about what strategy I should employ to save for his education.

The general advice seems to be that you will need 1000万 at least. (250万 for HS/750万 for Uni).

The Junior Nisa is not going to be much help here, it is being sunsetted in 3 years' time.

The question is, What approach should I take?

Option 1. Do nothing differently. Max out iDecos and Nisas. Keep 1 year`s living expenses in cash. Invest the rest in a taxable account.
(Low fee Global stock index 80%, Developed Bond Index 20%, adjust with age).

Option 2. Tsumitate. Invest 50-60万 every year in his account separately. Do not pool the funds.

Option 3. Front-load. Aim to invest 100万+ every year until age 11. Take advantage of compound interest, and max out the Junior Nisa for all remaining years. Even at the cost of other investments.

*I believe gift tax law determines that 100万 per parent, per year, is the current limit.

[Tony]

Is paying for your kids uni a common thing in western countries? Coming from Australia, I'd never heard of it happening, but financial planners here all talk about it. In my mind, once they reach uni age, kids can look after their own educational expenses by getting a scholarship/working part time/student loans ... but I'm not a parent ... or maybe I'm just an arsehole.

[Kanto]

Is paying for your kids uni a common thing in western countries? Coming from Australia, I'd never heard of it happening, but financial planners here all talk about it. In my mind, once they reach uni age, kids can look after their own educational expenses by getting a scholarship/working part time/student loans ... but I'm not a parent ... or maybe I'm just an arsehole.

I think this chart helps to explain it. It is incredibly common here in Japan. Australia seems to be the western country least onboard with the concept.

I do not know how you expect a 16-year-old to finance their HS education.

When it comes to university getting your children started off debt-free is the best gift you can give them IMO.

[RetireJapan]

750 for uni seems high. National university fees are about 0.5m per year I believe, obviously living away from home will be more expensive.
250 for high school seems closer. My youngest stepdaughter went to private HS and I think it was 5 man a month before the government subsidy.

My stepdaughters all got loans to cover university tuition and lived at home.

To answer the question asked though

I'd open the Junior NISA, mainly because it also comes with a junior taxable account, and invest in there. I'm guessing you'll be able to keep the junior taxable account at that point. Failing that the parents' NISA and taxable accounts. Shift to bonds the closer you get to needing the money.

The main reason to use the junior NISA is to avoid running into gift tax problems later.

Anyone else?

[goodandbadjapan]

Is paying for your kids uni a common thing in western countries? Coming from Australia, I'd never heard of it happening, but financial planners here all talk about it. In my mind, once they reach uni age, kids can look after their own educational expenses by getting a scholarship/working part time/student loans ... but I'm not a parent ... or maybe I'm just an arsehole.

Depends on the country, I suppose. I am from Scotland and we are lucky that university education is still free. Think that's the case in some other European countries, too. Obviously there are still living costs, book expenses, etc but the burden is nowhere near what it would be for folk here or in a country where you have to pay. The debt some people have coming out of college still astounds me. I wouldn't wish that on anybody just starting out so understand the parents wanting to get a good education fund in place.

[TokyoWart]

After finally finishing the process of setting up a Junior Nisa for my 5-month-old son, I started thinking about what strategy I should employ to save for his education.

The general advice seems to be that you will need 1000万 at least. (250万 for HS/750万 for Uni).

The Junior Nisa is not going to be much help here, it is being sunsetted in 3 years' time.

The question is, What approach should I take?

Option 1. Do nothing differently. Max out iDecos and Nisas. Keep 1 year`s living expenses in cash. Invest the rest in a taxable account.
(Low fee Global stock index 80%, Developed Bond Index 20%, adjust with age).

Option 2. Tsumitate. Invest 50-60万 every year in his account separately. Do not pool the funds.

Option 3. Front-load. Aim to invest 100万+ every year until age 11. Take advantage of compound interest, and max out the Junior Nisa for all remaining years. Even at the cost of other investments.

*I believe gift tax law determines that 100万 per parent, per year, is the current limit.

I think the yearly gift tax exemption here in Japan is 110万 to any individual (e.g. can give that much to each child).

I am currently paying college tuition for two of my boys going to school in the US. Their tuition (each) is around $20,000 per year with another $10,000 or so needed for dorm and food. That is at schools which are at the lower end of current tuition rates for the US.

[Kanto]

750 for uni seems high. National university fees are about 0.5m per year I believe, obviously living away from home will be more expensive.
250 for high school seems closer. My youngest stepdaughter went to private HS and I think it was 5 man a month before the government subsidy.

My stepdaughters all got loans to cover university tuition and lived at home.

To answer the question asked though

I'd open the Junior NISA, mainly because it also comes with a junior taxable account, and invest in there. I'm guessing you'll be able to keep the junior taxable account at that point. Failing that the parents' NISA and taxable accounts. Shift to bonds the closer you get to needing the money.

The main reason to use the junior NISA is to avoid running into gift tax problems later.

Anyone else?

I have both opened as of yesterday! (That was a process!)

FYI national Unis are lower in cost, but much harder to get into! I need to plan for all options.

Would you recommend I still use the J-Nisa? I suppose tax-free capital gains for 3 years are better than nothing.

I still do not know the best strategy. Perhaps a DIY "Target date" fund? Mix of All country Index/Developed bonds?

After finally finishing the process of setting up a Junior Nisa for my 5-month-old son, I started thinking about what strategy I should employ to save for his education.

The general advice seems to be that you will need 1000万 at least. (250万 for HS/750万 for Uni).

The Junior Nisa is not going to be much help here, it is being sunsetted in 3 years' time.

The question is, What approach should I take?

Option 1. Do nothing differently. Max out iDecos and Nisas. Keep 1 year`s living expenses in cash. Invest the rest in a taxable account.
(Low fee Global stock index 80%, Developed Bond Index 20%, adjust with age).

Option 2. Tsumitate. Invest 50-60万 every year in his account separately. Do not pool the funds.

Option 3. Front-load. Aim to invest 100万+ every year until age 11. Take advantage of compound interest, and max out the Junior Nisa for all remaining years. Even at the cost of other investments.

*I believe gift tax law determines that 100万 per parent, per year, is the current limit.

I think the yearly gift tax exemption here in Japan is 110万 to any individual (e.g. can give that much to each child).

I am currently paying college tuition for two of my boys going to school in the US. Their tuition (each) is around $20,000 per year with another $10,000 or so needed for dorm and food. That is at schools which are at the lower end of current tuition rates for the US.

My home country is Canada, so that is his 2nd option. Prices are about the same as Japan, and the stronger yen actually helps us there! If he wants to go to school in America, he will need to get a scholarship.

[TokyoWart]

My home country is Canada, so that is his 2nd option. Prices are about the same as Japan, and the stronger yen actually helps us there! If he wants to go to school in America, he will need to get a scholarship.

You're making me jealous College tuition is ridiculous in the US and there is no shortage of excellent universities in Canada. I remember thinking seriously about applying to McGill University when I was planning for medical school.

[Moneymatters]

Regarding Junior NISA. You could have 3.2mil invested by 2023.

The first para here:

https://www.fsa.go.jp/policy/nisa2/abou ... index.html

Appears to say that your 3.2mil could remain invested, with roll-overs, until your son turns 20 and any gains after 2024 would also be tax free.
Happy to be corrected of course.

For school fees, learn from my mistakes. Agree with your SO early on about education goals and reasonable costs. With two kids (one HS one Uni) I've easily spent over 9mil in juku fees alone. Admitted they both went to private JHS and so started juku in elementary school.

On the topic of percentage of parents bankrolling Uni. Several years old, but I found this interesting as Japan wasn't listed on the chart.
https://www.nikkei.com/article/DGXZZO53 ... 0C1000000/

Basically most parents will take either all or the lions share of Uni costs.

Around 50% of Japanese parents will use 学資保険. Returns are only 104-109% across 10 or more years and it should not be assumed that life insurance is included in these agreements.

[Kanto]

Regarding Junior NISA. You could have 3.2mil invested by 2023.

The first para here:

https://www.fsa.go.jp/policy/nisa2/abou ... index.html

Appears to say that your 3.2mil could remain invested, with roll-overs, until your son turns 20 and any gains after 2024 would also be tax free.
Happy to be corrected of course.

For school fees, learn from my mistakes. Agree with your SO early on about education goals and reasonable costs. With two kids (one HS one Uni) I've easily spent over 9mil in juku fees alone. Admitted they both went to private JHS and so started juku in elementary school.

On the topic of percentage of parents bankrolling Uni. Several years old, but I found this interesting as Japan wasn't listed on the chart.
https://www.nikkei.com/article/DGXZZO53 ... 0C1000000/

Basically most parents will take either all or the lions share of Uni costs.

Around 50% of Japanese parents will use 学資保険. Returns are only 104-109% across 10 or more years and it should not be assumed that life insurance is included in these agreements.

Thank you! I am leaning towards maxing out the J-Nisa. However, that could only be used after 18. The Japanese sources really help.

What do we think, All country Emaxis 100%? I can buy bonds later in his taxable account to balance it out.

As far as Jukus go, I think we agree that something simple like Kumon is what we are looking for. When it comes to money we are on the same page, heck she is the higher earner!