Thursday, January 4, 2018

Child Care Costs and 2018 Tax Changes

It's only four days into the year and I am crunching the numbers because we just got another daycare bill.

Two years ago with an infant and a two year old in full time daycare our expenses were insane!  We were paying nearly $2,000 a month.  Luckily our school district has a free preschool program which we started at age three so our costs dropped significantly. 

Now I have my two year old at a great daycare center which costs $245 a week.  And my 4 year old is in pre-k so I pay $400 a month for after-care.  My total monthly childcare costs are currently $1380.  (Side note: we were at another cheaper daycare center for a while and trust me we're so much happier paying a little more to know our kiddos are in great hands.)

So it's a lot.  It's funny because I frequently hear people encouraging couples to have more kids regardless of financial concerns, saying "oh, you'll figure it out!"  Please.  Even if I were to figure out squeezing another $250 car seat plus two years of diapers into my budget I'm confident another $1,000 would not just fall from the sky.

But just this week I got a note saying it's almost time to register my eldest for kindergarten!  I can't even believe it.  In just eight short months our child care costs should go down!  Assuming we will pay $400 a month for my youngest child's aftercare and $220 a month at an aftercare program at the elementary school our costs will be just $620 a month, a savings of $760 a month!

Before the passage of the Tax Bill we put $5000 into a Dependent Care account like we've done for the past several years, but that money doesn't even total half of our annual child care expenses.  Now I see, however, that we are able to save up to $10,000 pre-tax money in a 529 and use that towards childcare.  We already have a 529 set up for the kids and, at first, it seemed insane to touch that money for day care since it's for college savings but we could set up a separate one just for day care so the funds don't get co-mingled.

First, I need to figure out what my total 2018 child care expenses will be, anticipating the awesome savings come September.

January - June - $1,380 a month = $8,200

July - August - $1,780 a month = $3,560

September - December - $620 a month = $2,480

Total 2018 Child Care Expenses (projected) = $14,240.

Okay, time to open another 529....and maybe a beer.

Edit: I was wrong and you can't use a 529 to pay for daycare.  You can use it to pay for private school but that doesn't apply to us.  I know only a few people still read this blog but I didn't want to give out bad information!

Tuesday, January 2, 2018

Student Loans Versus My 457 Retirement Plan

Inspired by the New Year and a recent retirement milestone, I decided it would be fun to document my shrinking student loan balance as my retirement balance soars.

Over the holidays I noticed that my 457 Retirement Account had finally reached $50,000!  I shared in this very space how I created this account nine years ago so I wanted to update on the progress. Over the years I saved as much as I could in the account but it was only recently that I was able to really increase my contribution.  I now contribute 4% pre-tax and 8% post-tax of my paycheck to this account.  At the beginning of 2017 I only had $32,000, up from $25,000 in the beginning of 2016. 

If I contribute another 12% of my salary in 2018 (and see modest investment returns) I should have a retirement account that exceeds my student loan debt ($61,576.87) by the end of 2018. That's my goal anyway.

According to the amortization schedule it should take me until May 2023 to only owe $50,000 in student loans, so I'm hoping that the retirement balance climbs faster than the debt is scheduled to fall.

This is why when I see people advocate focus on paying off student loan debt before saving for retirement I cringe.  I have seen my account and my husband's account gain so much more steadily than the 4% interest rate (actually my husband's student loans are 2%) we pay.  And yes, being in debt sucks, but so does getting older without a plan for retirement.

Stay tuned as we try for both.  Bring it on, 2018!