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Painthappy 01-30-2013 04:57 PM

Saving for your child's education
 
Saving for your kid(s) shouldn't be burdensome. A little here and a little there adds up, and adds up fast.

Putting $100 a month away over the course of 18 years:

$100 x 12 months x 18 years = $21,600.00 face value and that's without any compounded interest.

A fairly risk adverse 4% interest rate compounded monthly brings you to over $31,000.00 in those 18 years.


529 Plans

In the US you can open up a college 529 plan, and the contribution limits are very high, and most will not have the worry of hitting those limits.

Interest in those 529 plans are tax free if used for education.

I have an account at Fidelity Investments for my daughter, and they also have a credit card for that plan. I use the card, pay it off, and 2% of my purchases goes into my child's account also. It's not much, but as seen above, every little bit helps.

These plans are automatically invested into the market and fully maintained by fund managers.

More information on the 529 plans: https://www.fidelity.com/529-plans/what-is-a-529-plan


Savings Bonds

Savings bonds are also a fair way of slowing putting money away and not having a means to "touch it", i.e., keeping it safe.

The "Series I" bonds are much better than the EE bonds many of us used to see as kids and were given as presents.

Currently the "Series I" bonds are paying out 1.76% annualized rate. Normally they pay out more with a basic fixed rate, but right now there is none, so probably not a great purchase overall, but for a guaranteed rate of return, one of the better ones you will find out there. (as opposed to a generic bank savings rate of return).

I have some old ones from 2001 still paying over 5% annually, even with today's interest rates. Once your locked in, you are locked in.

Info on the I Bonds: Individual - I Savings Bonds

Other Info

There are college IRA's, but due to the limits, and with the introduction of the 529 plans, the college IRAs have become all but obsolete.

I'll post more as I think of it, and please post up your ideas for others getting started, or thinking about it. Information is the best tool in savings.

Mann 01-31-2013 03:53 PM

I have a 529 for my child (or possibly children as a 529 can be transferred to any child or grandchild). We don't put in nearly enough money, but do make quarterly contributions.

Another thing we setup for our child is a minor IRA or sometimes called an adult to minor IRA. They are the owner, but we(the parents) are the controllers of the account until they are 18 (or 21 depending on your state iirc). The nice thing about it is that the interest grows tax free(actually it grows at his tax bracket which is tax free), it is investable (that may not be a word) in several mutual funds, and can be used toward first cars, first houses, college, etc. We choose a fund that is very conservative for our child as I don't want to take risks with anyone's money but my own.

I personally went to college, but do not want to force my child to go (I will, but don't want to). I figure this way he can use the money on whatever he wants. Hopefully I will teach him to be responsible before he gets it.


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