Too early to talk college savings plans?

kjordan0914 · September 2014

And by "college savings" I mean trade school, art school, bible school, or whatever my little man's heart desires.

I'm sure there is a more appropriate board to put this in, but the vaccine thread has proven we have lots of smarty pants ladies here so I wanted your help!

So I know nothing about any of this investment stuff. I took 3 accounting classes but it wasn't my thing and I never got it. From a brief google this is the information I have, correct me if I'm wrong:

Gerber life college plan:

A life insurance policy that the child can cash in if you don't croak in 18 years (or how ever many years you decide). I can't find the interest rate anywhere, and it seems to be based on the health of the parents. So, considering my life insurance that I already have went up because I hit 180 pounds, I assume our rates will be higher. Its also taxed from what I understand, or only taxed if my child doesn't go to a state college. I'm not sure.

529 plan:

I don't have a freaking clue. Help.

Regular savings account:

Up to .9% interest, some free to open with no minimum and no fees. I feel like this might be a good choice. DH and I can just set up a transfer amount of $25 a month each and in 18 years it should come out to about $12,000. Which is not enough for college probably but its what we can afford at this time. We can also increase it yearly with inflation, and put our yearly tax refunds into it. We would not have any checks and would set it up so that we both have to be there to withdraw anything. He's very strict about this sort of thing so I have no doubt we would not touch it until our baby is old enough.

I might be terribly misinformed about all of this so please don't take it that seriously. Do you ladies have a savings plan/ college plan set up for your little ones? Do you have any advice for me?

jennjilljo · September 2014

Interesting. We Started saving for DS from birth. Any baby shower or birth gifts that were can and all loose change went into a puffy bank and on his 1 st birthday we opened his first savings account. We've decided that instead of budgeting for extra we'll take all the extra money in our pockets at the ebbs of every day in a piggy bank and every year on his birthday we put it in his account that is accruing interest. It's not much but is what we can afford with only one of us working.

Amaryllismagic · September 2014

Here is a short, but pretty thorough summary of a 529 plan with some pros and cons, that's what we are looking at for our LO. https://www.bloomberg.com/news/2014-09-09/why-97-of-people-don-t-use-529-college-savings-plans.html I like it because the money goes in pre-tax and the child doesn't have to pay taxes on the money you put in, EVER. Just keep in mind that it is an investment account and so it will have gains and losses with the stock market. Some states offer tax incentives for these as well (mine does)

chickyclg · September 2014

We put aside $50 each week ($200 monthly) for each baby, we have debated upping it to $100 a week after they get here but are playing that one by ear. It might have to wait getting upped until after diapers.

I haven't looked into the gerber plan, I need to look into that one more.

jennjilljo · September 2014

I don't think so, @krendel1990‌. I wish someone would have taught me how to save and budget as a kid/teen. I would have so much more money than I do right now.

michelle142 · September 2014

DS has had a savings account and a 529 since birth.

The Savings Accounts gets money from birthdays, holidays.. etc. Plus a little extra when we have it. This money will be able to be spent a little more freely once we give him access to it.

He has a 529 that gets a set dollar amount per year. 529's are dedicated education expense accounts. Here's a little more 529 info: https://www.savingforcollege.com/intro_to_529s/what-is-a-529-plan.php

ETA: Baby #2 will get the same plans.

Valentino2013 · September 2014

We are starting to think about this. My husband looked into the Getber plan and did not like the terms and conditions. Sorry I forget the details. We will definitely set up a savings account and will probably open a college fund of some kind. Still working on the details.
Thanks for the info on the 529 plan. Well look into that too.

chickyclg · September 2014

@krendel1990 I wish somebody had taught me to save when I was younger, it wasn't until DH and I had to take a financial class for our premarital course that I learned how to save money. Even now I wish I had more control, I can't use the savings account at our bank because I see money and want to spend it so we have a credit union account that is across town that we forget about.

jmcgra06 · September 2014

krendel1990 said:
@amaryllismagic thanks, I didn't know that the 529 plan can gave gains and losses with the market. I don't like risk, I think I want a straight forward interest rate.

Realistically, though, that risk is very small if you pick the mutual fund accounts, and over 18 years, you get big time interest. Do what works for you, but our financial planner talked to us a lot about this and this is what he said. It's kind of like the book Rich Dad, Poor Dad - you have to have done risk in order to get reward.

If you don't have a financial planner, I highly recommend LearnVest. $100 to $400 up front and then $20 a month to get great financial advice. It had helped us immensely and our savings/retirement look so much better with minimal effort. Neither of our parents know much about this, so we really didn't have anyone giving us (educated) financial advice.

MapleMomma · September 2014

jmcgra06 said:

krendel1990 said:
@amaryllismagic thanks, I didn't know that the 529 plan can gave gains and losses with the market. I don't like risk, I think I want a straight forward interest rate.
Realistically, though, that risk is very small if you pick the mutual fund accounts, and over 18 years, you get big time interest. Do what works for you, but our financial planner talked to us a lot about this and this is what he said. It's kind of like the book Rich Dad, Poor Dad - you have to have done risk in order to get reward.

If you don't have a financial planner, I highly recommend LearnVest. $100 to $400 up front and then $20 a month to get great financial advice. It had helped us immensely and our savings/retirement look so much better with minimal effort. Neither of our parents know much about this, so we really didn't have anyone giving us (educated) financial advice.

I ditto this! While I know nothing about this company, I highly suggest a financial planner. Ours has been very helpful to us in planning for retirement, paying off our house, new barns, shop, vehicles ect and we now have no debt and a very healthy retirement plan.

We will teach our children to save and invest, we will not necessarily set up a college fund. In our family we own many successful businesses with no college education. Please don't take this the wrong way, education is important but in our family we have been blessed to learn and grow without it. Part of this is due to the rural area we live in.

edit- even if we don't do a college savings fund, we will vaccinate our children.

mandamoochie · September 2014

We have a 529 for henry and will for #2. It wont be enough to pay for school, but we do what we can afford.

Just a word to the wise for those of you who have normal savings accounts set up: when applying for loans/grants/aid they count as part of your child's assets and will hinder aid and interest rates. 529s are not counted.

AshleySparkle720 · September 2014

I haven't looked into it too much, but I figure we will do what my parents did for me and open a savings for baby G and keep putting money in it monthly. My parents were huge on teaching us how to budget as kids and I strongly believe in that as well.

Ducktale · September 2014

So I know I need to do more research , but I have questions on 529s

Is it true that if your child does not go to college you end up paying quite a bit of penalties to access the money? Or if they don't use all the money for education.

Is it just for tuition, or can it be for rent/ dorm, food, etc.?

Is it tied to the child, so you could not use funds in one account on another child?

Thanks all you smarty pants.

mandamoochie · September 2014

@ducktale if the money is taken out for certain reasons it is only taxed like part of your (or their) income. I.e. if your child gets a scholarship and they dont need the money. Other types of withdrawls typically have a 10% hit.

I know you can change the beneficiary before the 2nd child goes to college (so if your first doesnt use it all as long as its changed before the second goes)

I think it can be used for any expenses during school but I'm not 100% on that one.

Hope this helps!

Angeldcf · September 2014

We have a Coverdell account for DS that we max out each year. We plan to use this to help with college as well as have him take out loans and work. We meet with our financial planner 1-2x/yr (his fee is 1% of our portfolio) to tweak investments, etc.

Amaryllismagic · September 2014

Ducktale said:

So I know I need to do more research , but I have questions on 529s Is it true that if your child does not go to college you end up paying quite a bit of penalties to access the money? Or if they don't use all the money for education. Is it just for tuition, or can it be for rent/ dorm, food, etc.? Is it tied to the child, so you could not use funds in one account on another child? Thanks all you smarty pants.

I have not done my extensive research yet, but I'll answer what I can! One thing I have read is that the plans differ in some smaller details depending on what state/entity is sponsoring it.

The child does not pay taxes or penalties on the actual dollars that you put in, EVER, for any reason - no matter what they use the money for. However the gains/interest can be taxed if they use it for anything but college or withdraw it early.

It covers all college expenses as long as the student is enrolled a certain number of hours: tuition, books, room & board, etc.

You can transfer beneficiaries to avoid penalties if the original child will not use it or doesn't use it all. I haven't seen this on the savingforcollege.com page, but on the Georgia page it said you didn't have to be a parent, grandparent, or family member to start a fund for a child - so maybe a scholarship type arrangement could be made if your own child/children couldn't take advantage of it?

Chcaggie1 · September 2014

We have decided how much we will put aside ea month but not exactly where we will invest it. A friend recommended the Texas Tomorrow Fund (no idea what state you are in but perhaps if not Texas your state has something similar). You put in a set amount, he said it was something low like around $200 per month. Then when your child goes to college their education is completely paid for! Pretty cool. The only catch... your child must choose a texas state school (I'm an aggie so that's no problem!) and the $ MUST be used for education. The money does not have to be used by any specific person though. So if child #1 doesn't use it and then child #2 doesn't use it, then my hubby could use it to get his doctorate. Or we could allow our grandchildren to use it, etc.

Hubby hates the idea that if the kids don't use it we cant get the $ back so he's not fond of this option but I think it sounds pretty neat. So thought I would share so others can look into it.

dreemkin84 · September 2014

We just started doing research on this for Norah. I think we are going to do the 529. It seems like your money multiplies the best with option - vs a savings account (which barely grows) or an IRA (which is taxed more). But I feel like a n00b with all of this so we still have to do some research.

Beth.1212 · September 2014

mandamoochie said:

We have a 529 for henry and will for #2. It wont be enough to pay for school, but we do what we can afford. Just a word to the wise for those of you who have normal savings accounts set up: when applying for loans/grants/aid they count as part of your child's assets and will hinder aid and interest rates. 529s are not counted.

I know 529s aren't counted if the person who controls the account is *not* a parent - ex. I have control of accounts for my nephews, and it won't count for them - but don't they count if the parent controls the account? That's what I heard.

Irishcurls · September 2014

This one will definitely have a 529, probably a regular savings account as well. DH and I were just talking about teaching banking and budgeting and all that--obviously far down the road, but I had a passbook savings account that I would take to the bank and check my balance and get stickers and stuff from a very young age. Like 6 or 7 I think? I think it's important to talk about that kind of stuff, checking account/debit card when they're in high school or going to college, etc. My SIL couldn't get on their mortgage because she didn't have enough of a credit history. That kind of thing concerns me.

As for some of @ducktale's questions, the money can be used for any "qualified education expense" for the beneficiary: tuition, fees, books, room and board.

The money can be rolled over into any existing 529 for someone in the same family (siblings), there is no penalty for changing the beneficiary, there is no limit to the number of accounts that can be set up, you can use any state's plan and can go to school in any state (not limited by where your account was opened). There's also some waiver for children who receive full scholarships and therefore "don't need" the money for school.

I think there is no downside to a 529! Like any investment, time value of money will far exceed market volatility.

dreemkin84 · September 2014

Beth.1212 said:

mandamoochie said:

We have a 529 for henry and will for #2. It wont be enough to pay for school, but we do what we can afford.

Just a word to the wise for those of you who have normal savings accounts set up: when applying for loans/grants/aid they count as part of your child's assets and will hinder aid and interest rates. 529s are not counted.

I know 529s aren't counted if the person who controls the account is *not* a parent - ex. I have control of accounts for my nephews, and it won't count for them - but don't they count if the parent controls the account? That's what I heard.

No the 529 is not taken into consideration for financial aid if I am understanding correctly.

PeaceofKia · September 2014

I've already been looking into to. I wanted to do Gerber Life, but apparently withdrawing from it is actually considering a loan from the plan and would have to be repaid. Not cool. So we're thinking some type of savings account specifically for the twins with a decent interest rate.

So if someone else said this, didn't have time to read the responses, I'm supposed to be working...oops.

mandamoochie · September 2014

Yeah don't think you HAVE to get your states 529 plan. We live in delaware and delaware does NOT give any state income tax credits for the 529. So our 529 is actually from california because it had the best return and lowest fees.

Eta clarification and punctuation. Lol

Irishcurls · September 2014

Oh interesting, Google brought me to <this comparison> of each state's offerings. Check out your state and shop around!

mandamoochie · September 2014

dreemkin84 said:

Beth.1212 said:

mandamoochie said:

We have a 529 for henry and will for #2. It wont be enough to pay for school, but we do what we can afford.

Just a word to the wise for those of you who have normal savings accounts set up: when applying for loans/grants/aid they count as part of your child's assets and will hinder aid and interest rates. 529s are not counted.

I know 529s aren't counted if the person who controls the account is *not* a parent - ex. I have control of accounts for my nephews, and it won't count for them - but don't they count if the parent controls the account? That's what I heard.

No the 529 is not taken into consideration for financial aid if I am understanding correctly.

------------quote fail

Yeah no matter who the custodian is 529s dont count towards financial aid. Normal plain jane savings accounts do count. I know several people said the fluctuation of the market scared them and they wanted a normal savings account. I'm letting them know those everyday savings accounts with a passbook *do* count.

Irishcurls · September 2014

mandamoochie said:

mandamoochie said:

We have a 529 for henry and will for #2. It wont be enough to pay for school, but we do what we can afford. Just a word to the wise for those of you who have normal savings accounts set up: when applying for loans/grants/aid they count as part of your child's assets and will hinder aid and interest rates. 529s are not counted.

I know 529s aren't counted if the person who controls the account is *not* a parent - ex. I have control of accounts for my nephews, and it won't count for them - but don't they count if the parent controls the account? That's what I heard.
No the 529 is not taken into consideration for financial aid if I am understanding correctly.
------------quote fail Yeah no matter who the custodian is 529s dont count towards financial aid. Normal plain jane savings accounts do count. I know several people said the fluctuation of the market scared them and they wanted a normal savings account. I'm letting them know those everyday savings accounts with a passbook *do* count.

It does count towards a parent's asset if they're the account holder but the rate of expected contribution is actually the lowest of any account holder (5.64% per google), and qualified distributions reduce the asset amount for next year (so if $10,000 is taken out to pay for the sophomore year, the balance less $10,000 is subject to the parental rate). If the student owns it I think the rate is 20%, or a grandparent owns it and gifts the distribution, that's subjected to a 50% rate.

eta link and words:

https://www.savingforcollege.com/intro_to_529s/does-a-529-plan-affect-financial-aid.php#.

529 plans held by parents or other non-beneficiary

A 529 account owned by a parent for a dependent student is reported on the federal financial aid application (FAFSA) as a parental asset. Parental assets are assessed at a maximum 5.64% rate in determining the student's Expected Family Contribution (EFC).

Ducktale · September 2014

This thread is super helpful

mandamoochie · September 2014

Lol thanks @irishcurls I was going by what this fiancial planner at PNC bank said. This stuff is harrrrrd. :-S

Irishcurls · September 2014

For real @mandamoochie‌--so hard! I had to look it up to double check but everything I've read about them basically say the "penalty" in the fafsa isn't enough not to have one, kwim? But taxes and retirement and college are all just mind fucks.

jmcgra06 · September 2014

mandamoochie said:

Yeah don't think you HAVE to get your states 529 plan. We live in delaware and delaware does NOT give any state income tax credits for the 529. So our 529 is actually from california because it had the best return and lowest fees. Eta clarification and punctuation. Lol

True. You get a tax break if you use your state's plan (at least in MD) so you have to weigh the fact that the money you put into your state's plan is not STATE taxed (the federal government is still getting their cut) but if you use another state, it may be.

jennjilljo · September 2014

I've learned so much today. In going to re-think my current plan and possibly add to the savings possibilities for this LO and big brother.

lilybug319 · September 2014

I have no idea how any of this stuff works but DH says his grandparents set up a savings bond for DD and will do so for DS. We have a savings account for each that we put $5000 into each year until they go off to college but that money will be used for whatever they choose to use it on. And he says we'll be doing the 529 route for both as well.

mandamoochie · September 2014

For age based life cycle depending on which one you pick it seems to run anywhere from 6.5% - 10% interest return according to scholar's choice.

mandamoochie · September 2014

@krendel1990‌ I think the return would obviously diminish the less time it is in the account ($1000 when your baby is 3 months old has a lot longer to grow than $1000 put in at 15 years old) but basically lifecycle funds aggressively invest when the baby is young and become safer investments as they draw closer to maturity (in our LO's case 2033)

Eta: we've gotten statements for the last year or so with dh's lifecycle retirement that has CONSISTENTLY had returns of 23-25%. Obviously that won't last but it's reflective of the stock market now)

TexasMamma0809 · September 2014

I second the helpfulness of this thread. Except the bigger finance words that are over my head.

that's what I get for majoring in communications!

Irishcurls · September 2014

mandamoochie said:

@krendel1990‌ I think the return would obviously diminish the less time it is in the account ($1000 when your baby is 3 months old has a lot longer to grow than $1000 put in at 15 years old) but basically lifecycle funds aggressively invest when the baby is young and become safer investments as they draw closer to maturity (in our LO's case 2033) Eta: we've gotten statements for the last year or so with dh's lifecycle retirement that has CONSISTENTLY had returns of 23-25%. Obviously that won't last but it's reflective of the stock market now)

Yeah our accounts have been killing it lately. I try not to look at it too often though, since you gotta have a 30 year mindset with that stuff.

@krendel1990 there really is no way to "sneak" the money out of a 529, but it's definitely not unethical to have the account in your mom's name. Plenty of grandparents open them for grandchildren. My understanding however, is that since the child always the beneficiary of the money, if it comes from a grandparent's 529, it is considered the student's income, which is actually subjected to much higher "fees" when calculating the FAFSA contribution you are responsible for.

The money can only come out as a check in your (account owner) name, child's name, or directly to the school. The amount distributed will be captured in a 1099 tax form so it's not like you can just get it and not tell anyone about it....but honestly I wouldn't let that deter you from looking into an account and contributing!

mandamoochie · September 2014

@irishcurls caught my mistake. A 529 does count as a parental asset. But this isnt levied against the student as much as other accounts. An explaination is here : https://www.savingforcollege.com/intro_to_529s/does-a-529-plan-affect-financial-aid.php

Mrs. Zee · September 2014

I think we will definitely do the 529 for college and the coverdell for high school since I know our kids will definitely go private for that. I need to talk to our financial planner about all this bc I am a planner!! I do love that they are pre-tax contributions for both accounts. One thing to keep in mind is estate planning and who the true "owner" of any account is. I know my parents set up mine and my brothers education accounts so that if they should have perished while we were minors, no one could take "our" accounts and money. I am guessing we would have gotten access on our 18th birthdays for education related expenses. Also if someone is sued, ideally if the child is the owner and the monies are protected. I haven't done all my research on this but just something to think about.

Irishcurls · September 2014

mandamoochie said:

@irishcurls caught my mistake. A 529 does count as a parental asset. But this isnt levied against the student as much as other accounts. An explaination is here : https://www.savingforcollege.com/intro_to_529s/does-a-529-plan-affect-financial-aid.php

Excellent link! I knew it wasn't "that bad" in the scheme of things! Thanks @mandamoochie!

Want a personalized experience?

Too early to talk college savings plans?

Re: Too early to talk college savings plans?

529 plans held by parents or other non-beneficiary

Choose Another Board

Search Boards