Savings for kids

[quesyrah]

I have 5 figures per kid to put somewhere. I have two kids, ages 9 and 12. They do not currently have any type of college savings and I’m not sure how much monthly/annually we could contribute going forward.

Where would you put this money?

[flygirl]

If you want them to have a college find, I’d open a 529

[Susie]

My kids each have a 529 and a savings account. The savings account earns basically no interest, but it's a place to put the small amounts they sometimes receive as gifts.

[ohgillian]

I personally would put it in a 529, unless you definitely don't plan to fund any college expenses for them.

[memenee]

I could have written this post - I have 5 figures for each of my kids and unsure where to put it.

My concern with a 529 is - what happens if your child doesn’t go to college? Can I open brokerage accts for them nstead and put the money in mutual funds?

Thank you


Eta my kids are the same age too!

[wanderingback]

I would put it in a capital one or other online savings account for now.

I’m not sure about 529s because I think there are penalties if it doesn’t get used for college. I would read more up on that. I personally don’t feel like college is a given/necesssary so I think I’ll be hesitant to use a 529, but I need to read up more on them.

[dcn]

I’d open 529 accounts. Your contributions are always yours, you can withdraw them anytime. If you withdraw earnings for non-education expenses there is a 10% penalty plus you’ll pay tax.

Savingforcollege.com has good explanations.

[quesyrah]

If we never put too much more than the initial deposit, is the 529 still recommended?

I was thinking it wouldn’t go far at all for college.

My older kid wants to go to MIT and I think he’ll go to college for sure. My younger one is a wild card.

[quesyrah]

Jul 28, 2022 19:46:09 GMT -5 wanderingback said:

I would put it in a capital one or other online savings account for now.

I’m not sure about 529s because I think there are penalties if it doesn’t get used for college. I would read more up on that. I personally don’t feel like college is a given/necesssary so I think I’ll be hesitant to use a 529, but I need to read up more on them.

This is my concern. What if they don’t go to college?

I did, DH didn’t and neither of us feels that college is a must for our kids.

[quesyrah]

Jul 28, 2022 19:18:16 GMT -5 memenee said:

I could have written this post - I have 5 figures for each of my kids and unsure where to put it.

My concern with a 529 is - what happens if your child doesn’t go to college? Can I open brokerage accts for them nstead and put the money in mutual funds?

Thank you


Eta my kids are the same age too!

I have the same concern about if they don’t go to college.

Ideally I want the money to grow as much as possible, so if I think in terms of that, is a 529 still the best option?

[imojoebunny]

If your kid doesn't go to college, you can use the 529 for other things (this list is ever expanding, but many trades), or pay a relatively small tax penalty for not using it for a down payment on a house, if invested well. Saving in your 401K/IRA/ROTH should be your priority, 100%, over a 529.

[quesyrah]

Jul 28, 2022 23:18:43 GMT -5 imojoebunny said:

If your kid doesn't go to college, you can use the 529 for other things (this list is ever expanding, but many trades), or pay a relatively small tax penalty for not using it for a down payment on a house, if invested well. Saving in your 401K/IRA/ROTH should be your priority, 100%, over a 529.

When you say “your 401K/IRA/ROTH,” do you mean for the kids or for me and DH?

DH does 20% to his 401K (we are pretty on track for retirement) and I have a Roth that we make a quarterly contribution to (I would have to double check the %). So I think we are ok there.

The money in question is from my inheritance. I want to set some aside for the kids so I’d like to put $15K away for each kid.

[puppylove64]

I guess I’m the outlier here…. I opened UTMA for my kids. They are invested in mutual funds. It basically grows tax free, because they are not making enough to face kiddie tax. They cannot touch it until 18 (21 for some states). When they are 18, they can use it for whatever they want. It is their money and has no restrictions.

[Deleted]

I am also in the minority. I think you should take some of it and invest it. Once they start work, I would start placing it in retirement funds for them.

www.fidelity.com/learning-center/personal-finance/retirement/turbocharge-childs-retirement

I can take out loans for college or go to trade school. I cannot borrow for retirement.

[simpsongal]

I could see an argument for a safe investment vehicle since the kids are not super young and you're not sure about higher education or trade school. I'm not impressed by the returns on a 529, even though the gains are untaxed. We fund them and get a state tax benefit every year too, but not every state offers that.

In Virginia, you can deduct up to $4K per year off your state taxes per kid, and I think per account holder (which works out to about 10% savings for the contribution). So if you were in VA, you and your spouse could each open 529 accounts for your kids, contribute $8K for each kid and get the tax savings and then the tax free growth of the vehicles. And then make the same contribution next year. You'd be saving $1600 in state taxes over 2 yrs.

[dcn]

If you don’t want to do a 529, I have other savings in just a “high” interest rate savings account.

Or maybe I-bonds?

[quesyrah]

Thanks everyone, you’ve given me some things to think about and look into!

[Deleted]

You can certainly do a mix of suggested ideas. You don't have to put all into 529s or all into mutual funds/retirement funds. In fact, it's probably pretty smart to do a mix.

[ellipses84]

I’d put the majority in a 529. There are options if you don’t use it for school, but it seems to be the best option for safe investment growth for kids. One account can be transferred to another kid, too, if you only want to set it up for the oldest kid and see how things go.

Obviously we hope for student loan reform, but if you have are middle class dual income household, chances are your child won’t qualify for financial aid or be able to take out all of their own loans, and you will either have to take our parent loans or pay as you go for their tuition if they do decide to go. We will not have enough savings for our kids’ college, but I would like to have a decent amount to get them started. Doubling your money in a 529 by the time they turn 18 is going to be helpful if they decide they really want to go to college.

I guess you could consider investing it in stocks, but it’s riskier. No savings account is going to compete with an investment of that size.

My kids also have a high interest savings account through a local credit union that works with our school district (I think it’s like 5% for the first $1000 and like 2% above that until they turn 13).

[dutchgirl678]

Our local credit union has kids savings accounts with 5% interest so I opened one for each of them and contribute monthly to it.

[Poppy]

I would do 529s. The penalties are relatively small if you can't find a qualifying expense to withdraw them for (as PPs said, there are non-college things that qualify).

Ours are invested in mutual funds and have grown nicely.

[sandandsea]

We did a 529 for our kids.

[moonpie]

We didn’t want to be tied to 529 rules so we just used a regular mutual fund at fidelity. We have an account for each kid. We don’t plan to use it for only college, but also 1st vehicle, down payment, etc. Basically whatever we can do to help each of them get a start in their adult life.

While I will strongly encourage the kids to go to college, our extended family is primarily self employed and DH and I are both first generation college grads. I also joined the military. So I recognize there are a lot of other great paths in life.

We already contribute to 401ks and an hsa, so I’m not really worried about the loss of tax benefit by not using a 529.

[W.T.Faulkner]

Jul 29, 2022 6:31:37 GMT -5 puppylove64 said:

I guess I’m the outlier here…. I opened UTMA for my kids. They are invested in mutual funds. It basically grows tax free, because they are not making enough to face kiddie tax. They cannot touch it until 18 (21 for some states). When they are 18, they can use it for whatever they want. It is their money and has no restrictions.

I also did this for both of our children, and it’s what my parents did for me. I didn’t know mine existed until I was 21 years old. I want my kids to be around the same age when they gain access to it. 

[egeiger]

I opened a Roth and put money in it separate from our other retirement vehicles. We will be able to withdraw the money that we put in to use in assisting paying for college. We will also pay off the house the year she graduates, so expect to be able to cash flow the balance.

[quesyrah]

Jul 31, 2022 7:23:59 GMT -5 egeiger said:

I opened a Roth and put money in it separate from our other retirement vehicles. We will be able to withdraw the money that we put in to use in assisting paying for college. We will also pay off the house the year she graduates, so expect to be able to cash flow the balance.

Our house will be paid off the year my youngest starts college. So we are hoping to cash flow expenses for her. Not sure yet how we’ll help our son.

We were thinking that this would be nowhere near enough to pay for college, but if we get it invested well now, hopefully it will help with starting their adult life after college.

[wildrice]

I am surprised i-bonds haven't come up more than once in this thread! They are currently gaining almost 10% interest which is not the case with any other investment or savings vehicle that I'm aware of. Personally, I would put 10k into one of those and just leave it there. And maybe put the other 5k into a traditional savings account for now or into a 529.

I've lost like 15% on my retirement investments in the last few months so I'd probably hesitate to put anything additional in investments right now. Presumably they will recover and it might even be a great time to buy because you can buy stocks for cheap, but personally I am not super savvy when it comes to stocks and investments and it just feels too unstable to me to be confident that I'd make good choices.

[wanderingback]

Jul 29, 2022 6:31:37 GMT -5 puppylove64 said:

I guess I’m the outlier here…. I opened UTMA for my kids. They are invested in mutual funds. It basically grows tax free, because they are not making enough to face kiddie tax. They cannot touch it until 18 (21 for some states). When they are 18, they can use it for whatever they want. It is their money and has no restrictions.

Thanks for sharing this, never heard of this.
I’m currently pregnant and my partner and I just had a random conversation about how the cost of college in the US is ridiculous and if our child doesn’t want to go (especially right after high school) we certainly will be 100% ok with that and will be happy to support them in other ways. So anyway, if we can save a little bit for however they want to start adulthood I’m glad there are other options to explore.

[sparty04]

We have 4 kids but only opened 2 529's. We don't intend to pay for all college expenses, but if all 4 go to college, we intend to transfer them to the younger kids once the older ones use their share.

[carrotsmakemefat]

My MIL taught me about bonds. Our college plan in my state can ONLY be used for in state schools. I want the money to be accessible if he goes out of state or wants to join military / use the money for other things like home down payment.