College Savings Advice

[Bergman]

I have been sitting on some savings for about a year now, which has been in a high-yield savings account up to this point.

My son is now 2.5 years old, and it's time to stop being lazy and get this money into an investment that will earn more than 3%.

I've read about several options, including 529 plans, Coverdell educational IRAs, and pre-paid tuition. I'm looking to retain control of the funds and also ensure that I can get at them in the event he gets a scholarship, academy, or doesn't go to college.

I don't manage money for a living, so any advice is appreciated!

[Skitzo]

Excellent question. We have one on the way and I'm wondering the same thing. Who knows maybe in a couple of months the govt will be paying for it.

[Toro]

We use American Funds for a 529 plan called College America. You can contribute up to 24K a year, earnings are tax-free and withdrawals for qualified higher education expenses are free from federal tax. If necessary, you can change beneficiaries and you control your assets (you can decide when to make withdrawals and can move your assets once a year or when you change beneficiaries).

You have to use the service through a financial advisor. I don't know if USAA qualifies, but we use AXA.

You can download a program description pdf file here.

[Guest LocoF16]

Depending on how much active duty time you accrue before you retire, the new GI Bill allows you to pass the benefit to your dependents. Tough for Guard guys unless you're AGR, I believe it requires at least ten years of active duty service to pass the benefit. Someone else may be smarter on that...

Without getting too complicated, here is what one schmuck done...I've bought an investment property for each kid I have. Both of them were foreclosure properties so I got 'em for cheap. I'm trying to add money to the rent I get from them every month so that they're paid off by the time each kid is 18. By that time the rent payments will become income that will keep going into my pocket long after the kids have graduated. Plus, if I ever need money in case of emergency, I could sell the house or take out a home equity loan. Not to mention the huge tax write offs. My taxable income last year was damn near zero. I manage my properties myself, but I have other friends who use property managers and never have to bother with anything.

One downside is the temptation to cash out and go after more properties. With the market the way it is, you can easily get properties for 60-80% of their value right now...

[Guest C-21 Pilot]

Depending on how much active duty time you accrue before you retire, the new GI Bill allows you to pass the benefit to your dependents. Tough for Guard guys unless you're AGR, I believe it requires at least ten years of active duty service to pass the benefit. Someone else may be smarter on that...

Without getting too complicated, here is what one schmuck done...I've bought an investment property for each kid I have. Both of them were foreclosure properties so I got 'em for cheap. I'm trying to add money to the rent I get from them every month so that they're paid off by the time each kid is 18. By that time the rent payments will become income that will keep going into my pocket long after the kids have graduated. Plus, if I ever need money in case of emergency, I could sell the house or take out a home equity loan. Not to mention the huge tax write offs. My taxable income last year was damn near zero. I manage my properties myself, but I have other friends who use property managers and never have to bother with anything.

One downside is the temptation to cash out and go after more properties. With the market the way it is, you can easily get properties for 60-80% of their value right now...

Loco,

I donj't have the recent AF Times article in front of me, but from what I read, the new GI Bill isn't 100% approved right now - expecting a Aug 2009 date. While it did mention transfer of funds, it is still in the works and getting tweaked.

Nonetheless, a GREAT benefit.

[sputnik]

Loco,

I donj't have the recent AF Times article in front of me, but from what I read, the new GI Bill isn't 100% approved right now - expecting a Aug 2009 date. While it did mention transfer of funds, it is still in the works and getting tweaked.

Nonetheless, a GREAT benefit.

GI Bill was signed into law, just doesn't take effect till Aug 09.

You can transfer some not all. By which I mean, you can transfer the tuition, but not the living expenses, books and fees. Still a great deal, just not as great as if you used it. Expires 15 years after you separate/retire.

I use 529s. Nevada and Utah offerred the best plans when I set ours up a few years ago. Went with Nevada, run by Vanguard. Low fees and about zero restrictions on how it's used.

[Guest DHPope93]

https://www.savingforcollege.com/

This is an excellent place for info on every state's 529 plan, as well as info for Coverdells and financial calculators. Some states even offer tax deductions/credits for residents using their plans. We're in AZ and use the Fidelity plans (no broker) and the Waddell and Reed plans (broker, plan funded by aunt). If your state doesn't offer a tax benefit, just find the best bang for your buck.

Based on my limited research, pre-paid tuition is great if your kid ends up in an in-state public school. You can still use the money for out-of-state or private schools, but they won't guarantee full coverage. Conversely, the savings plans are unrestricted, but you're hoping for market forces to help your investment rise to meet any future school costs. The limited amount available to invest in Coverdells (2K per child per year) plus the fact that any excess monies go to the child made it a non-starter for my family's purposes. YMMW.

The biggest key: save early, save often.

Peace,

DP

[slacker]

USAA makes the 529 process fairly easy. I set some up last year online via the USAA website, never had to talk to anyone- all online.

[Skitzo]

I just checked out the FL 529 plans and am quite impressed. Seems like a very viable option. I don't think I'm going to pay for everything but the 2+2 plan seems reasonable. I was under the impression that 529 plans were limited to that state only, the fact that at least they will pay whatever they would pay for an in state school adds some value.

Awesome link DH!!!! Many thanks.

[Guest Tertle]

Put it in some renewable notes. I've got some with 3 different offerings right now with an average interest rate of 12%

They are more risky than typical 'savings' type accounts, but payoff is worth it and they're still pretty safe.

[Guest Mike Brogan]

I just set up 529s for my kids. I don't really like what the market is doing right now, but I figured I better go ahead and set em up regardless...