Charlotte has received $950.00 so far from friends and family. I have not yet deposited any money because I'm uncertain the best place to put it.
If it goes in a savings account then it will get spent. And not by her.
I am open to an education fund but am leery of them as well. I feel like the 529's and such are new-ish products and worry about how great of an idea they will be 16 -18 years from now when we use the money. I have heard some limit the colleges she can attend, some have large fees if she does not attend college, and some have fees just to invest the money.
And we are uncertain about putting her into a private high school which is currently costing about $8- $10k a year on average here in my town. So we might want to use the money when she is about 14 yrs old towards her private schooling.
I looked into TIAA Cref and they seem pretty standard. As I understand it, the money is currently accumulating 1% interest, and that is variable. The money has a 10% penalty when not used for school. And we get a $2k tax credit per year for investing the money. If money is used for school we pay no taxes towards interest accrued on account.
But I worry things will change once the money is locked up. Like the govt has discussed making ROTH's less attractive, and cutting Social Security, and all the other programs the govt changes it's mind about.
Do you guys have any opinions or advice?
At this point I am thinking of opening a 1 year CD and spending the year thinking about what to do with the money.
$950.00
November 8th, 2013 at 03:23 pm
November 8th, 2013 at 03:40 pm 1383925206
You might consider a mix of investments.
We have a 3 and 5 year old. We have a 529 for each of them, which we contribute $2400 a year. We try to stash extra college money in our ROTH IRAs, because money in those accounts can be used to pay for a child's tuition, without penalty. AND, if we don't need it, we still have it saved for our own retirements.
As far as high school tuition, Coverdell account money can be used for high school and elementary tuition, but I'm not sure what the contribution limits are. I seem to remember they've gotten more complicated in recent years.
As for k-12 tuition. I don't know where you live or what your situation is. But, we live in a major midwestern city with abysmal public schools. We had a paid off house and once we had two kids approaching kindergarten age and started looking at our options, things got complicated. We loved our house and neighborhood, but it made more sense to sell it and pay more for a similar house in a top-notch school district. Once you figure the cost of tuition vs property taxes in a good district, the math for private school for us didn't make sense. Plus, we have two...
Just food for thought.
November 8th, 2013 at 03:57 pm 1383926255
At this point we don't know what country we'll be in when the girls are ready for college, so I haven't seriously considered a 529. Will look at that more closely if we decide we're staying in the U.S. for the foreseeable future.
November 8th, 2013 at 04:35 pm 1383928539
If it were me I'd probably put it into ROTHs. You need to have earned income though and any earnings and interest is taxed when you withdraw. The rules are a little more complicated, but that is the short version. Grows tax-free forever, otherwise. Based on tax history, government will later prevent new ROTH contributions and/or offer incentives to take money out of ROTHs. I wouldn't expect anything more drastic than that if they later decide to take ROTHs out of rotation.
529 plans are restrictive and expensive. I do not like. We skipped them early on because our region is more "housing is expensive; not college". Both dh and I used our college money towards our first home instead. So, being penalized for not using the money for college just did not work for us. NOW, we are in the 15% tax bracket and so our long term capital gains are taxed at 0%. You are probably in the same boat? Low tax bracket? We just put kids' money in regular taxable accounts. Simple tax management keeps the money non-taxed, and then we can invest anywhere without any restrictions. This also greatly reduces fees.
Coverdell/ESA - Education IRAs. I steered clear of these because word was they were being replaced by 529s. But, politicians plan things and then change their minds later. I am regretting this a bit because ESAs are still here 10 years later!! You can put $2k per year but there is no up front tax break for this. The earnings grow tax free. Less fees and more options than 529, but still a lot of restrictions and rules. {I guess I don't really regret because our ROTHs and taxable accounts are still better for our situation}.
What did you look into at TIAA Cref? A 529 plan? There are no $2,000 tax credits unless maybe a state tax credit for your state on certain 529 plans. Plus, I wouldn't take on a restrictive tax shelter to shelter 1% interest on $950. You'd certainly pay more in fees and headaches than you would ever save on taxes.
I am fairly conservative, but if you don't need the money for 14+ years, why not just invest it in the stock market? That seems the most sensible. If that is too risky for you, consider U.S. Treasury Bonds. They have higher interest rates and education tax benefits (for longer term investments).
November 8th, 2013 at 05:25 pm 1383931533
November 9th, 2013 at 04:36 am 1383971794
November 9th, 2013 at 02:39 pm 1384007983
Jumping forward 18 years, entrepreneurial DS1 in college with a plan to transfer to a university after completing 2 yr, local program proudly paid tuition and most costs from summer earnings DS2 took a 'gap' year to join us in China. Returned to school and is now completing his Masters. The sums cashed out of the MF have been paltry.
Sorry for such a long post but my point is we can't possibly know what circumstances will be so long into the future. As an instructor, I know that students who put 'skin in the game' and earn school money seem more serious and focussed on their education. Those who rely on generosity of Mom & Dad often can't be bothered to get up for their 8 AM classes and act pretty immature year one.
November 9th, 2013 at 02:44 pm 1384008291
November 9th, 2013 at 02:50 pm 1384008605