Educational Savings Accounts

[Dunit35]

Anybody have one for their children? Or a 529 plan?

We opened a regular savings account for our two year old daughter when she was born. We only put in $10/every other week. We are about to do the same for our newborn. It will amount to $4600 or so. It'll pay for one semester or help with a vehicle.

It looks like a better return would be an education plan. More money will go into it when debt is cleared up.

[RunKC]

Correct me if I'm wrong, but isn't that plan only effective if they go to college?

[kepp]

We have 529's for both our kids. It's definitely better than a normal savings account. The difference being that funds from a 529 HAVE to go towards educational expenses. You won't be able to buy a car with it.

[Dunit35]

That's the only downfall with the educational stuff. What do they do with the cash if they don't go to school. It looks like it's a 10% tax penalty if it's not used for school.

[Saul Good]

I've got one for both of my kids. It's a small defined benefit plan from a former employer that I've directed into a 529. I think it puts in around $250 a month. I haven't even looked at it in probably a year or two, but it's probably got around $30k in it by now. My oldest is 8, so it should be enough to get him through college by the time he's 18 and hopefully have enough left over to get our youngest most of the way there. A scholarship still wouldn't hurt, though.

[ChiTown]

Originally Posted by Dunit35

That's the only downfall with the educational stuff. What do they do with the cash if they don't go to school. It looks like it's a 10% tax penalty if it's not used for school.

Correct, plus the income tax on the earnings. If your child decides not to go to school, the 529 can be transferred to a Family member or can be used in vocational or trade schools - you can use it as well.

[kepp]

Originally Posted by Dunit35

That's the only downfall with the educational stuff. What do they do with the cash if they don't go to school. It looks like it's a 10% tax penalty if it's not used for school.

From https://www.missourimost.org/content...529basics.html

What happens if the beneficiary doesn't want to continue his or her education?
If that's the case, you have a couple of options. You can stay invested in case he or she decides to attend school later (there's no age limit on using the money), you can change the beneficiary to an eligible family member, or you can withdraw the money for other uses. A 10% penalty tax on earnings (as well as federal and state income taxes) will apply if you withdraw the money to pay for nonqualified expenses.

[Dunit35]

Originally Posted by ChiTown

Correct, plus the income tax on the earnings. If your child decides not to go to school, the 529 can be transferred to a Family member or can be used in vocational or trade schools - you can use it as well.

I know many successfull non college educated people, my brother being one of them. I also have two sister in laws that couldn't complete high school and both still live at home, in their 20's. One of them refuses to get a job.

I will pay the penalties and keep the money if they don't go to some type college.

[BigBeauford]

I use a 529 plan as well. I believe what you put in is deductible in the state of Kansas for state taxes up to a certain amount, a nice benefit.

[Dunit35]

My oldest has $635 in her account. I have never invested any money so it does worry me that I'll lose the money.

[kepp]

Originally Posted by Dunit35

My oldest has $635 in her account. I have never invested any money so it does worry me that I'll lose the money.

It's a long-term investment...you can't react to day-by-day market swings. The funds that we use have a 5 year return of just over 9%. You will lose money on some days, but over the long haul, you'll gain. I think most 529 programs will have age-based/risk-based options.

[Dunit35]

Originally Posted by kepp

It's a long-term investment...you can't react to day-by-day market swings. The funds that we use have a 5 year return of just over 9%. You will lose money on some days, but over the long haul, you'll gain. I think most 529 programs will have age-based/risk-based options.

How do people get them started? Find a good investment company and go that route?

[kepp]

Originally Posted by Dunit35

How do people get them started? Find a good investment company and go that route?

A lot of states "sponsor" 529 programs. I went with Missouri's MOST program. But I'm sure you can open 529 accounts that aren't state sponsored.

https://www.ok4saving.org/

[Amnorix]

If you think/expect your kid(s) will go to college, a 529 plan is hard to beat. Essentially it lets you invest money into an earmarked account which grows tax free and can be withdrawn tax free to pay for qualified expenses.

Some states, including Missouri, allow tax credits/deductions for certain contributions to a 529 Plan.

http://www.savingforcollege.com/arti...ally-worth-733


You do of course have the risk of losing principal, etc., but most 529 plans have options to invest in programs based on the year the kid is anticipated to start college. As the kid gets older, the risk matrix is shifted to reduce the percentage invested in higher risk assets and into lower risk assets.

[Amnorix]

Originally Posted by Dunit35

How do people get them started? Find a good investment company and go that route?

Pretty much. Be aware that many 529 plans are "linked" to states, but that you can invest in any state's 529 plan. You don't have to invest in the one in the staet where you live.