Starting a college fund?

[99BlownYellowGT]

My daughter just turned 2 on Monday and i want to start up a college fund for her so she doesnt have thousands of dollars of loans like i ended up with. I want to add to it a couple times a month with my checks.What are my best options?

[kirks5oh]

not sure about ohio, but here in wisconsin, you can put 'tax free' money into a what's called a 529 plan. i started it when each of my 3 kids were born. a set amount comes out each month and goes into each account. then we periodically dump money into the account, as well as allow relatives to put money into it. obviously, you can get the money back if the kids don't go to college, but there is a 5-10% penalty. you can use the money towards anything related to education (dorms, laptops, books, and obviously tuition).

 

i was lucky enough to have my parents cover college tuition, and i want to be able to do at least that, and possibly grad school or a private school.

[TTQ B4U]

529 is a good start. I also defer post tax dollars into a a couple money markets I have strictly for them. My parents covered my school too but what I found out later is the cash they also provided came from an account they had for me since birth. I have about 9k in my sons Acct already. The way I see it $100 per month per kid will yield thousands and by the time he's in school should he need a car or emergency cash it will be there and not hardly impact me at all which is key as we plan to retire early.

 

Small amounts add up and certainly cause less pain now than say thousands in a lump sum later when the need arises.

[greg1647545532]

http://www.collegeadvantage.com/

 

That site is run by the Ohio Tuition Trust, or whatever it is that's authorized to run the state's 529 program. I signed all 3 of my kids up there with automatic deductions after sitting down with a dippy financial planner from Edward Jones. He did this thing where he kept asking himself questions that he would then answer, and one of his questions was, "I know what you're thinking, 'Why don't I just sign up through collegeadvantage.com and cut out the middle man?'" and then his answer to that question didn't really impress me. So that's what I did.

[2highpsi]

529 like everyone said.

Contributions are state tax deductible (up to a certain amount) plus you won't have to claim any gains as long as the money withdrawn is used for education.

 

You can actually start a "college fund". It becomes it's own entity, has a tax id and everything.... But unless you have maxed you 529, 401k, and IRA contributions, I would even start looking at it.

[black00ws6]

529 plan

[HotCarl]

If im not mistaken you can take a loan out against a Roth IRA for certain purposes without penalty, such as a down payment on a house, and/or education for a child but this would kind of defeat the purpose of an IRA, i mean after all your saving for retirement not education or a house right? Either way, Ohio has a 529 aswell. My mom started one for the grandchildren but i have no idea how much is in theirs. Tim was right, it doesnt matter how much the monthly contribution is b/c you have time on your side, as long as your consistantly making contributions towards it and it grows steadily.

 

There is another type of education investment tool but i cant remember the name of it. The upside was that you had more powere over where the money was going but the downside was once the child turned 18 the full balance of the account was theirs. I have a friend that has it b/c he knows what he's doing but he says before his son turns 18 he's going to put it all in a 529 so he (the dad) has more control over it.

[zeitgeist57]

There is another type of education investment tool but i cant remember the name of it. The upside was that you had more powere over where the money was going but the downside was once the child turned 18 the full balance of the account was theirs. I have a friend that has it b/c he knows what he's doing but he says before his son turns 18 he's going to put it all in a 529 so he (the dad) has more control over it.

 

You may be referring to a Coverdell account for education? The only account I know of where the kid gets the coin automatically at age 18 is an UTMA/UGMA (Uniform Trust to Minors Account). That is a trust account, not a college savings account.

 

BEST OPTION IS A 529 PLAN. Use the College Advantage website for the state of Ohio...$2k every year can be contributed tax-free from you OR OTHERS...makes a great option for parents/grandparents to funnel their money towards your kid without getting taxed.

 

Also, the beneficiary can be changed: if your kid doesn't go to college, you can change the beneiciary to your wife, and she can go to a culinary institute. Or you can get your CDA through a truck-driving school. The money in a 529 plan can be used for almost anything provided the beneficiary is enrolled in a higher-education program. I had clients that used 529 funds for cars, laptops, etc ad were fine when audited by the IRS because their child was in college.

[Putty]

529 is not the only option. There is also a plan called a coverdell. This plan is good because it allows you to use the funds anytime K-12 instead of just college, but you can only contribute 2k a year. It also allows you to transfer the funds to a family member if your child ends up with a scholarship or whatever. See the link below..what I read before I chose my plan for my daughter.

 

http://collegeprepu.com/coverdell-vs-529/

[Akula]

I have several different funds going for my both of my sons. I have a 529, I also have an education IRA and I have some education bonds.

 

If you don't believe in financial advisors, you can find a good credit union with a nice college savings portfolio. You don't have to use collegeadvantage for a 529, in fact I would suggest against it as I don't trust random people (especially government types) handling my money.

[2highpsi]

You don't HAVE to use college advantage....

But some of the other options (ie American Funds) contributions are not state tax deductible.

College advantage isn't "government run". The funds are managed by investment companies.

Be thankful that Ohio changed. The state plan used to be Putnam... And those funds were aweful.

You don't have to use an advisor either.. But A shares still charge you the same upfront fee.. And C shares still carry the same 12b1 ongoing fee. Any regular advisor won't charge anything aditional to manage the account (which if you use age based allocation anyone could do) but atleast you have someone to do the paperwork and leg work for you.

[zeitgeist57]

CollegeAdvantage offers BlackRock self-directed funds...the 12b-1 fees are way better than A- or C-share funds.

 

Check out savingforcollege.com to compare different state funds. I only suggest Ohio because most Columbus residents I know can benefit from the $2k tax-free and so can other friends/family members...which is just as important in a flat market.

[99BlownYellowGT]

Thanks for all the input. Im reading up on these now.Got me headed in the right direction.