Question for the Money Guru's

[930addict]

.

[HardDrive]

A 529 plan is the standard vehicle for college savings these days. The money grows tax deffered until you start with drawing it for school expenses.

We recently started a plan for our daughter using the University of Alaska plan. It gets very high ratings all around. Its managed by T. Rowe Price. I liked the ease of administration, clear documentation and a good selection of funds. The funds are not shooting stars, but they are stable, and you have your choice of risk vs. growth.

http://www.uacollegesavings.com

You can order an information packet + enrollment form off the site, or just download all the documents. I had planned on doing everything on paper, but it was so easy to do on the site, I went that route. As long as you have your SS, that of your spouse and your childs, it is about a 10 minute deal. Once its filled out, you can just send them a check, or do an EFT. You can also set up an automatic debit, or a payroll deduction.

There is currently a federal gift limit of $12,000 per year, but you can put as much as $60,000 in up front, then count that against the next 5 years. Just make sure you accountant knows the deal.

EDIT: Aw crap. I guess I should have read your post more carefully. "We don't want it to be only for college". You can with draw money from a 529 when ever you want, but there is a 10% penalty. Well, I hope the info helps someone.....

[Don Plumley]

For educational purposes, a 529 is the simplest option. It grows tax free, has the most flexibility of use. This is better than a UGTMA account because the minor gains access at 18.

If you want to maintain control over how the money is spent, set up a simple trust and fund any kind of investment account.

The biggest issue will be taxation on the income (if it is over $1,700 a year) as it will be taxed at your marginal rate (the kiddie tax).

Hopefully maybe one of the real financial gurus will chime in.

[Don Plumley]

You and your spouse can each gift 12K a year. So put a lump into a 529, and until you decide if you want a trust account or other option, just put it into an account under your name...

[KFC911]

Originally posted by Wayne at Pelican Parts
....Utah appears to have the best plan in the nation - that's the one that I have, and my financial advisor (non-commission, consultant fee-based) has recommended.

-Wayne

I want to set one up for my 3 week old 'grand niece'...do you a have link or more info? Thanks!

[Nathans_Dad]

Agree, a 529 is the best choice for college money. You said you wanted it to be her "nest egg" though, which is a different story. If you are looking to put money in that she might use towards retirement or to purchase a home one day or whatnot, PLEASE do not stick the money into a savings account!!

Savings account have some of the lowest returns of any vehicle you might choose. If your child is 4 months old, you are looking at a 25 year or so timeframe before she would be in a position to use that money, like to buy a house.

Personally I would look into putting some of it into a 529 and the other portion into a standard taxable investment account. I would then invest that money in something simple, like an index fund. www.vanguard.com has several you can look at. They are simple, low cost and don't require any thought or management from you. If you see on the evening news that the market went up that day, you made money. If it went down, you lost money. You also can set it up to automatically reinvest dividends so you never accrue any cash in the account.

Here is the difference in return between a savings account and putting the money into a index fund:

Savings account at 4% (average rate today) over 25 years: $66,645
Investment account returning 8% (historical market return has been 10%, but I'm being a little conservative): $171,211

That's over $100k difference.

Now a savings account is certainly "safer", although I'm not sure if you can lock in that interest rate for the life of the account, I suspect not. You also would have immediate access to the money if you needed it, while an investment account would take you a few days to get at the money and you would have to pay capital gains tax. The investment account does carry a risk that you could lose money, however over 25 years, the market has NEVER lost money in its history.

P.S. One other thing. You might look into setting up a trust, especially if you plan on putting more money into the account over time. This account could easily grow to $500k or more if you put a couple thousand in a year at the beginning. Of course we all hope our daughters grow up to be perfectly respsonsible adults, but an account in their name with $500k in it is awfully tempting for a young 19 year old in college...

[930addict]

.

[the]

I looked at a 529 recently, it seemed like there were only very limited options as to how the money can be invested. Looks like a few mutual funds and that's it.

True?

[Nathans_Dad]

Yes, I think the 529 has limited options for what you can invest in.

[LeeH]

I like a Roth IRA for college.

[jhc]

If you have 5k to spare look into this: http://www.ricetrust.com/