College fund for our baby?

Question

We've got a 6 month old daughter and we want to set up some savings for her to use when it comes time to go to college. Ideally it would be an account we could continually add into over time that would produce significant growth over the next 18 years. However, we also want control over the account (meaning if she doesn't go to college or if she gets a full scholarship we can be in control of what happens to it next). At this time we'd have about $3K to put in. Any suggestions???

Answer 1

I agree with what most people are saying. A 529 is a great college savings tool and it takes care of one of your issues. If your child gets a scholarship, most plans will allow you to withdraw an amount equal to the scholarship amount tax free. If your child doesn't go to college its not as clear cut though. You can take the money out anyway and pay taxes/penalties on the money or you can change the beneficiary of the account (not a bad option if you have more kids in the future). The other nice benefit is the high contribution limits. As someone mentioned above you can give 5 years up front for a total of $60K, but its even better then that because you and your spouse, or grandparents, or anyone else for that matter can contribute to the account. Your other best option is just to open an investment account that is earmarked for that purpose. This of course only works if you are disciplined enough not to tap into it for a new boat in a few years. This way if your daughter doesn't go to school, or gets a scholarship you have complete control over the money. The downside is that you don't get the tax advantages. Whatever you decide the most important thing is to start now. Oh, and I wouldn't go with the EE bonds at 3.4%. Inflation was about 3.5% last year so those basically lost .1% in buying power.

Answer 2

OK first off, a Roth IRA should be for your retirement, not your child's education. You can use the money from the IRA for schooling but there are other options to save for your child.

You can establish a 529 or Education Savings Account - which are normally used for educational expenses. Both have a limit on how much you can contribute each year (and it can vary depending on your income).

You can also look into a Uniform Gift to Minors account. You can contribute as much as you want and can be used for anything. Bad thing is once the child is old enough, they can use the money for whatever the want!

Establishing a trust is another option.

I suggest talking with a financial planner to see what option best suits your needs.

Answer 3

DO NOT GO TO A FULL SERVICE BROKERAGE WITH $3000--you are wasting eachother's time. Merrill's minimus is $100k--most teams are 250k to a million minimum. Plus, the fees will kill you.

Go directly to a mutual fund company www.americanfunds.com is great. A great fund for this type of thing is the Balanced fund of America. Buy "Class C" shares--no load.

You can also go to fidelity or vanguard and get real low cost funds. Just pick a good balanced fund.

Also make sure you open a 529 account. You can contribute up to 12K per contributor, per year with a one time 5-year front loading option whereby each "contributor" could put $60k in for the first year.

Answer 4

We had this same question when our daughter was born. We looked at a number of options and what we came up with were US savings bonds.

They earn a decent interest rate which is currently 3.4% for a $50 bond which costs $25. Obviously it is insured. But the big plus is when they get to college age, if the money is used for education purposes, the money is tax free. If they don't use the money for college you can use it for say a down payment on a house.

I talked to a number of individuals about different plans, and when I told them I decided on US saving bonds, not one person argued that their plan was better. They all responded with a single word response. OH. Like I had actually figured out the best plan, but they were not willing to admit it.

Answer 5

You should check with a money manager such as those that work at Merrill Lynch, Rowe, American Financial Advisers, to name just a few.

There are many in your local telephone book that you can look up. They can be of help to you. Normally consulting the first time is of no charge.

One should be able to set you up with a fund that might Even be tax deductible if you are setting up a college fund.

You should check with a tax consultant for any tax information.

I hope this has been of some use to you, good luck.

"FIGHT ON"

Answer 6

do not put it in an ira. You cant touch it till your 60. Whatever account you put it in make sure your name is on it and that you AND your childs names will be required for withdrawl. or talk to your accountant he's the professional

Answer 7

Check your bank's website--there is probably a menu along the side with investment options...invest the money into something, let it grow for eighteen years, and make sure that everything stays in your name...Otherwise, get a lot of savings bonds.

Answer 8

ok first of all you should put that money towards your retirement.....your kid can always get loans for school but you cant get a loan for your retirement

if you dont like my first advice then I would put it into a high yield savings account like emigrantdirect.com or INGdirect.com offers

the third option is long term cds(buy them at your bank)

the fourth option is go to scottrade.com and open an account- invest in mutual funds or stocks that are pretty stable like Pepsi, IBM, Apple, Coca Cola, etc.

Answer 9

ask your state for the application for a 529 account. It lowers your taxes and the baby can withdraw the $$ tax free for school. Each state has its own rules