I hate to be the bearer of bad news–but I haven’t found much in the way of good options when it comes to saving for my offspring’s future. As a frugal person seeking a quality lifestyle–I already know student loans are off the table. I don’t want my son or daughter inheriting a bill that they’ll be paying down when they have kids. I have been doing some minor research during feeding sessions with my newborn and the results have been dismal. I know what you’re thinking–a newborn and you’re already researching how to pay for college? Well, yes. The easiest way to afford something is to plan, plan, plan. I suppose I wasn’t thinking this way until a few family members started sending congratulatory checks and I realized I didn’t know what to do with the money. Sure, it would be easy to deposit it into checking and consider it a helpful boost during this life transition. But I know we can do better than that and so this is my quest to find the best place to keep our son’s savings.
I had always assumed we would use the 529 College Savings Plan when the time came. This is a tax-advantaged investment plan administered by your state. The money is to be used specifically for your child’s education and you won’t be taxed when you take it out–much like a Roth IRA (which, incidentally people also manipulate to save for college). You can transfer it to just about any member of your family if the kid decides not to attend college. In my cursory reading about it through the years, the 529 Plan seemed like the way to go. But as I started to do more research I liked it less. I personally don’t love the idea of limitations on the money we are saving for our family–which means the stock market probably isn’t the place we are going to end up keeping it. Second, I recently caught an article in the news about President Obama trying to shut down the existing 529 Plan in favor of one that significantly cuts its benefits by raising the amount taxed on individuals. His efforts failed, but now I have it in my head that it’s just a matter of time before it changes for the worse.
Then I started looking into CDs–or certificates of deposit, since the interest on them can be double what online savings accounts are currently offering. As you probably know, these require customers to keep the money there for a certain length of time–up to five years if you choose it. But hey, no problem, right? This is for eighteen years from now! The huge downside is you can’t add money to them more than once in a term–and even that isn’t always true depending on who you bank with. I can’t overlook this flaw. Assuming you want to contribute on a regular basis–you would have to open another CD for whatever new savings you’ve accumulated. And then you have to track when each one expires and have the money in a bunch of separate accounts… and that sounds like an organizational headache.
I also learned UGMA/UTMA Custodial Accounts exist where you can control the money while it is in the name of your child. These can be used for anything, not strictly education. You have to be fairly certain you will not be using financial aid because if you choose to do so, the amount will be reduced by 20-25% of what’s in your account at that time. This is kind of in the same category as the 529 Plan is in my mind–where growing your money at a higher rate adds all sorts of complications.
And now for the exciting place I’ve landed–at least so far, with a good, old fashioned savings account. Who would have thought I’d be so daring–so clever; that the summation of my research would lead me to the very thing I already have? You’re welcome, reader. The growth potential will be small for now–but at least I know the money is safe and growing a little until I have a better idea. The place we bank offers 1% for accounts over 25,000 and .90% for under that amount. That’s higher than most other online savings and I can live with that for now.
Where do you keep money for your children’s future and how has that worked out so far? Vanguard’s website has some great tools to help get the brainstorm ball rolling.