Best investment for child who not sure will go to college?

Question

I want to start investing money for my daughter but want to be protected in case she decides she doesn't want to go to college. What is my best choice? I know about the tax advantages of a 529 plan but worry what would happen if she doesn't go to college.

Answer 1

Finally.... someone who is now thinking.

Answer 2

A more concrete plan will need to be developed, as it seems your daughter is on the fence about attending college or not. If she is interested in attending college, then a conservative approach is warranted (I am a parent myself, and that is the way I would go) and saving every extra dollar should be your objective. A 529 plan is good, but remember that the money can only be withdrawn for educational purposes, limited living expenses, or justified big expenses; if used otherwise, you lost the tax shelter. I also go conservative on my stock investments...I probably would put some money in a market tracking fund, or other mutual funds. Government bonds are also good.

Now, if you are sure your daughter is not going to attend college, then I would suggest a more aggressive approach, but still tempered. (Knowing that your daughter is not going to college will allow room for error in your risk aversion...your objective should be to increase your daughter's money nest-egg as big as possible before you decide to give it to her). I would go with individual stocks, maybe micro-cap, or bio-tech.

Also, real estate investing should be another consideration, whether your daughter will attend college or not. It is staid, and sometimes, you can even get higher returns than other investments.

Hope this helps...

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Answer 3

Good question. As you may know the 529 Plan grows uses after tax $, but grows tax-deferred and distributions again are not taxed if used for tuition or any education related expense for that matter. The investment options are limited to mutual funds sponsored by states (you can invest in any state's plan regardless of what state you reside).

The Coverdell (formerly known as the College IRA) has a larger choice of mutual funds to choose from, but contributions are limited to $2,00/year per child and ther is a phaseout for being able to contribute at all for single filers over 100k and joint around 200k. Funds must be dist by age 30 or rolled over to another child under age 30.

College Savings Plans are better in that contr is up to 250k total, wide choice of mutual funds, can be dist at any age and rolled over to next generation. You can even name yourself as the beneficiary if you go back to school and your kid's join the circus or fall in love and marry a starving artist.

They all carry the 10% withdrawal penalty and taxed as ordinary income if dist for use other than educational costs.

One solution is to just invest in standard vehicle/portfolio (mutual fund mix/fund-stocks-bond mix,etc) to have max flexibility for use of money. Your only savings in the qualified plans is you graduated marginal tax rate applied to the growth. Depending on the performance of the plan/fund may not be worth taking the 10% w/d risk.

Best answer-save 1/2 in a 529 and 1/2 in regular portfolio/mutual fund investment and preach the value and benefits of a college education for future earning power and peresonal fulfillment!

Check out wsj.com., Dummies series book on college planning, wsj Complete Personal Finance Guidebook, money.com, or GOOgle "college planning"

Good luck!