Savings for kids

[mainelyfoolish]

Aug 1, 2022 13:49:58 GMT -5 carrotsmakemefat said:

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.

When you say your state’s 529 can only be used in state, that sounds like a prepaid tuition plan which is different from a savings plan. The savings plans allow you to use the money at any college and some non-college training programs. You should double check to see if your state offers this type of plan as an alternative to the prepaid tuition plan.

You can also open a 529 savings plan in any state, you do not have to be a resident. Some states offer tax benefits or grants to residents who use the in-state plan, so it makes sense to check your home state plan first.

[mainelyfoolish]

Aug 1, 2022 8:35:09 GMT -5 wildrice said:

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.

There are a few reasons I prefer a 529 over I-bonds:

- If the I-bonds are purchased in the child’s name, the interest is not tax-exempt when used for education.
- Making regular contributions to my state’s 529 plan gets my kids some grant money added to their accounts each year by the state. (We don’t have a state tax deduction for contributions.)
- If I buy the I-bonds in my child’s name, they are the owner of that money when they turn 18. I would rather control the money I have saved for college throughout the years my kids are in college. 
- The rate of return on I-bonds now is very high because of high inflation, but the fixed rate on current bonds is 0%. When inflation goes down, the rate of return won’t be as spectacular. With zero or negative inflation, the bonds issued now will earn 0% interest. 
- The rate of increase in college expenses is higher than the rate of inflation, so I feel like I need some exposure to equities if I want any chance to have enough money to afford the amount of college I am hoping to pay for. It is scary when the market goes down, but I expect my withdrawals will be over 4 years for each kid, so it would have to be a protracted downturn to not have gained any advantage from stock investments. My kids’ 529s are invested in age-based funds, so they automatically become more conservatively invested as they get older and closer to college.

I like I-bonds and I have them as part of my savings, but not for college savings. 

[ohgillian]

Aug 1, 2022 12:13:59 GMT -5 wanderingback said:

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.

I had missed this news before now. Congrats!

[jlt19]

Right now I’d buy I-Binds and either a brokerage account or maybe a custodial Roth IRA for them. In those I’d buy some GOOG, AMZN, and a few well rounded ETFs. Everything is on sale right now!