Child’s College Savings (529 or coffee tin in the backyard)?
Is it better to set up a 529 for college savings or just to "bury it in the back yard?"
Not literally, but just to have the money in hand at full value in safe keeping, or to pay an investor and risk losing my daughter’s college fund in the shaky stock market. What is your opinion? I would really love some good answers! Any financial girls and guys out there who can help me make an informed responsible decision with my daughter’s interest in mind!
Thanks.
A 21 Year old wife and mother, with a 3 month old baby girl and a DAVE RAMSEY ADDICT!!
I’d like to point out that firstly, im not a parent. I work w individuals on a daily basis who have 529 plans set up for their children, but i don’t actually do any of this myself, so take what i say w a grain of salt as i haven’t experienced it myself.
The 529 plan is a good way to save money for your child’s schooling. Everything you put into the account is saved solely for the costs of your child attending a institute of higher education. Unlike a normal savings account you cannot just draw out money when you like and spend it on anything. You can retrieve money from a 529 for other purposes other than education but there is a hefty fine associated w doing this. This will prevent u from drawing money from the account for other things, esp when your child is still young and you figure u’ll have plenty of time to save that money again. I believe there may be a slightly higher interest rate that builds on a 529 plan than in a normal savings account but i would look into this a little more. You also dont get taxed on the money until you withdraw it.
Some people will tell u its not worth saving for college, but this is just ignorance. It’s true that any money put into the account will eventually need to be claimed on the FAFSA. This will make your family look more affluent, and therefore nix your chances of receiving financial need grants from the government. These grants currently, however, only amount to about $7000 per year so it isn’t worth forgoing saving money for several years just to get 7 grand which wont even cover most schools. To avoid this problem though, consider putting the 529 plan under the child’s grandparents name (esp if your parents are still young). Grandparent income does not need to be claimed on the FAFSA so you could have lots of money saved but it won’t hurt your chances of getting federal grants. Your parent can have the money sent to the university on the child’s behalf.
One major drawback (which hopefully won’t happen) is if your daughter decides not to attend college. If she decides to go straight into the workforce or to get married and be a mother out of high school then you will have a lot of money set aside for something that isn’t going to happen. You can take the money out of the account but w the huge penalty on using it on non-educational expenses it will seem that it wasn’t even worth saving the money. Hopefully this wont happen, and if it does, hopefully she will have a younger brother or sister that you can transfer it to.
That is just a little info and tips that i have come across when working w families w 529 plans. Talk more to people at your bank to find out the specifics
I vote for the 529 college savings plan since it is tax deductible in some cases both state and federal tax wise. The stock market will always come back. There are a variety of different mutual funds to chose from to match any investment style including treasury bonds. You still have pleanty of time to invest until she goes to college. The best thing is that it will grow tax free while your daughter grows up!
References :
I’d like to point out that firstly, im not a parent. I work w individuals on a daily basis who have 529 plans set up for their children, but i don’t actually do any of this myself, so take what i say w a grain of salt as i haven’t experienced it myself.
The 529 plan is a good way to save money for your child’s schooling. Everything you put into the account is saved solely for the costs of your child attending a institute of higher education. Unlike a normal savings account you cannot just draw out money when you like and spend it on anything. You can retrieve money from a 529 for other purposes other than education but there is a hefty fine associated w doing this. This will prevent u from drawing money from the account for other things, esp when your child is still young and you figure u’ll have plenty of time to save that money again. I believe there may be a slightly higher interest rate that builds on a 529 plan than in a normal savings account but i would look into this a little more. You also dont get taxed on the money until you withdraw it.
Some people will tell u its not worth saving for college, but this is just ignorance. It’s true that any money put into the account will eventually need to be claimed on the FAFSA. This will make your family look more affluent, and therefore nix your chances of receiving financial need grants from the government. These grants currently, however, only amount to about $7000 per year so it isn’t worth forgoing saving money for several years just to get 7 grand which wont even cover most schools. To avoid this problem though, consider putting the 529 plan under the child’s grandparents name (esp if your parents are still young). Grandparent income does not need to be claimed on the FAFSA so you could have lots of money saved but it won’t hurt your chances of getting federal grants. Your parent can have the money sent to the university on the child’s behalf.
One major drawback (which hopefully won’t happen) is if your daughter decides not to attend college. If she decides to go straight into the workforce or to get married and be a mother out of high school then you will have a lot of money set aside for something that isn’t going to happen. You can take the money out of the account but w the huge penalty on using it on non-educational expenses it will seem that it wasn’t even worth saving the money. Hopefully this wont happen, and if it does, hopefully she will have a younger brother or sister that you can transfer it to.
That is just a little info and tips that i have come across when working w families w 529 plans. Talk more to people at your bank to find out the specifics
References :