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529 or No 29? [College or No College?]

by J. Money on Monday, September 17, 2012

hack college shirt

If you were to ask me about college savings anytime before last month, I would have told you that we were 100% going to open up a 529 the second our baby popped out. But as much as I wish I could tell you we’ve since obeyed our own plans, the fact is we still haven’t. And it’s not just because we’re exhausted or lazy ;)

The truth is, an itsy bitsy part of me started second guessing the whole “college savings” plan to begin with. I don’t know where it came from, or why it’s happening now after all these years of being sold on them for so long, but a few weeks ago I got this weird little feeling that maybe – just maybe – my son would want to start his own business one day like his dad and try and skip out on college altogether. And for the first time in my existence I caught myself thinking, “Huh. Would that BE so bad?”

Generation after generation of my family all graduating college, and here I am nonchalantly throwing it out the window.  Who am I??? Haha… But at the same time, how could I deny the power of entrepreneurship if the whole 18 years before he’s ready to leave the house I’m preaching on about small businesses and how important they are? Wouldn’t that make me the biggest hypocrite? Or do I hold the party line and make him 4 more years and THEN open up the flood gates to 24 hour “kill your business!” mode? If he doesn’t drop out and start the next Facebook? ;)

I don’t know what I must have drank that night, but the doubt was a creepin’ in and my stomach wasn’t too happy about it. So naturally I brought it up to the Mrs. in hopes she could shed some more light on things here (and/or set me straight). And WOW did she give it to me! Haha…

I won’t utter the words that came out of her mouth, but here were the main takeaways ;)

  1. There’s no way in hell our kids aren’t going to college – don’t ever mention that again.
  2. You don’t even know if any of our kids will even LIKE business?
  3. And what about those other children of ours? No college savings for them either?
  4. Aren’t you the one always saying how college is MORE than just an education? It’s where you learn about life and network and have the time of your life??
  5. Did I mention never to bring up not going to college again?

Haha… man.  When in doubt, ask the wife! ;)  I must admit it felt good to be back into reality though… College IS more than just a degree – it’s a part of your life for exploration and networking and just being an adult all on your own! (For those who don’t commute, at least) I wouldn’t change my past for the world, and if I could wait until after college to start a biz, why couldn’t my children too? There’s no way I’d be where I am today without that degree, what the hell was I thinking??

And it’s so true – odds are all my children WON’T wanna start their own businesses, so whether it’s Baby $ in that category or another, putting money aside for college would indeed be the smart and responsible thing to do here…  Whether it’s a 529 or not (though I haven’t researched those other avenues all too much, outside of simple comparison charts).

So why a 529?

Well, everyone and their mothers just rave about them. I have yet to see a real negative review really, although I’m sure there are tons of them out there. If you don’t already know what a 529 is, here’s a good and quick recap by Trent from The Simple Dollar:

A 529 plan is simply an investment account with a few tax advantages that make it very useful for saving for higher education. To be specific, any interest or investment income earned in the account that is then used for higher education is exempt from federal taxes (and from state taxes in many locations). In some states, the contributions themselves are deductible from state taxes.

So it’s pretty much an account where you can invest your money now to grow and grow and grow, and then in the future you can dump it out tax-free and apply it all to college stuff. Tuition, room and board, books, etc. And if you decide to spend it elsewhere, well, you’re penalized and pay a steep fee on top of all the taxes (at least for all the profit your account has made since you opened it). It’s pretty similar to a Roth IRA from what I’ve seen so far – only instead of tapping it when it’s time to retire, you tap it for when someone needs an education (and you can put a lot more into a 529 than a mere $5k/year). Which sounds really good to me!

Here are some good resources I’ve found so far on these guys:

And here’s a list of some of the pros and cons of these 529s:

  • PRO: Earnings are tax free!!
  • PRO: You can divide up the money to more than one kid
  • PRO: You can even use it for other family members like siblings/parents/etc!
  • PRO: You can use the money all across the country, and sometimes internationally
  • PRO: You can always take it all out later worst case scenario, and then just pay the dues (which sucks, but hey – at least you don’t lose all your money! Which was something I didn’t know about and was the main scary factor here)
  • CON: The money *has to* be used for college-like stuff – no changing your mind and splurging later on something else ;)
  • CON: You’re banking on the idea that someone in your family WILL indeed go to college. If they don’t, it’s time to pay the piper.
  • CON: It’s one more account to keep track of and stay on top of. Rather than, say, a savings or current investment account (though this applies to any outside account too, not just the 529s)

5 Green ones and 3 Red ones, not too bad ;) And there’s also two different types of 529s too – one where you just contribute as you wish every month (just like with other accounts), and then another where you can actually PRE-PAY for $XXXXXX and have it all taken care of for whenever that magical day comes.  Which is kinda freaky cuz you have to follow a bit more of the rules I believe with this one, as far as *where* the beneficiary can go to school and all that.  But I really didn’t look into it all that much – maybe you guys have? Or are actually DOING this kind?

For us, I think we’ll stick with the normal “pay as you go” method and see how it pans out… I have a chunk of $350 waiting from the other month when I won Mr. Ramit’s money, so we’ll start there and then add a couple hundred as time goes on until we’re more comfortable with a monthly stream.  Unless it cuts down on costs or something if we have to automate it more? I’ll find out more about that in a bit… And then have nightmares of this below quote I snagged from the AP:

“Parents of a baby born today would have to save $385 a month in order to afford housing and tuition at the average state school…”

And that’s just for ONE! Imagine two or three? Or seven or eight? Better be some damn good football players! Haha… And just goes to show how serious this stuff is – you can’t wait ’till the last minute.

So those are my thoughts on this 529 stuff. We’re planning on pulling the trigger at the end of the week with USAA (naturally), so if you have anything you’d like to say to help sway me one way or the other, now’s your time to do so! You might be able to convince me a bit more, but it’ll be much harder with the wife ;) All I know for sure is that we gotta start saving something, somewhere, and we gotta do it NOW. I’ll need even more money later when it’s time to invest in their little businesses! ;)

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(Photo by michaelk.sutton)


{ 36 comments… read them below or add one }

1 The Financial Blogger September 17, 2012 at 6:55 am

I’ve opened my account this year and I can tell you that I don’t regret it. When you think about it, it’s true that you can have a great life and make money without having a college degree but it is still the minority who makes it without diplomas.

I wish my son can become a soccer star player so he will make millions and won’t have to study but I’ll still put money aside to pay him an good education while he is doing is soccer camp ;-). You know, just in case he doesn’t become the next Beckham, at least, he will be able to become an engineer or a banker ;-) lol!

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2 Lance @ Money Life and More September 17, 2012 at 7:07 am

Saving for college is great but have you decided already you are paying for all of it? My parents paid for half of my college and that was a good incentive for me to try to go out and get scholarships and work my butt off to make sure I got good grades. When you personally are paying for it you take a bit more responsibility.

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3 jp September 17, 2012 at 7:32 am

The downfall of these comes when the child goes to college. When a university/college looks at a student for scholarships, the amount of money in the students name is weighted more heavily than the money in the parents name. So when a student comes to college with a 529 plan, the university assumes that all of that money is for the student’s education (which it is), and the student is less qualified for need-based scholarships. (whereas, when they look at a parents money, they realize that the parent has to pay for their own housing, retirement, other children, food, transportation, etc.). Many private merit-based scholarships also often look at the amount of money in a students name and look for need based when deciding between two equally qualified students.

If/when I have children, I will not be using a 529 unless I really need the tax break. I don’t want to limit their potiential for scholarships. I will definitely be setting up a separate account for them, but keep it under my name. That way they have a chance at more scholarships, or if they decide they don’t want to go to college, I can use the money for other things: help out with a downpayment on a house for them, or apply it to my retirement, or blow it all on a nice vacation :) I think it leaves more options to not tie up the money in a specific account.

On the other hand, if one has major issues with saving money and keeping it long term for a specific purpose (which in your case isn’t the issue) then a 529 is a great idea – it forces one to save and use the money for educational purposes.

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4 Brian September 17, 2012 at 7:51 am

We opened the 529 account before our little guy even made his appearance into the world. In Indiana (who I ALWAYS owe money to) I get a 20% tax credit on the first $5K I put in each year. So it really was a no brainer for me. That and the first year’s worth of money we put in came from her recently passed grandfather. We figured he would love to know he is helping out a great-grandchild with education.

I’m more than willing to take my tax hit years from now if my son (or other future children) get a full ride, do ROTC or decide college isn’t for them. I’d just like to know that I have some money already set aside for college.

PS if this posted twice sorry, my internet at work has been acting screwy…

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5 Stephanie September 17, 2012 at 8:38 am

I’m kind of on the fence about this, but at the moment I’m actually leaning in favor of a Roth IRA, since there is more flexibility, specifically no penalty if the child decides not to pursue some sort of post-secondary education. While I’m personally of the mindset that college (or trade school, or an apprenticeship, or SOME sort of career training) is a must, and it’s pretty likely that my future child(ren) would go voluntarily, I don’t believe in forcing that kind of thing. If you force a kid to go to college when he or she isn’t interested/motivated, it’s just a HUGE waste of money.

Of course, I’m also of the opinion that I have no obligation to cover my kids’ entire college education. I think it’s a bit easier for them to slack off if they don’t have as much of a stake in it. My parents and my pop-pop managed to set aside a little over $20k for me for college, which would have covered roughly 1/4 of my undergrad expenses. I knew I was going to be responsible for paying for my education, so I worked my butt off starting in high school, and I got a full scholarship (tuition and housing) to my first choice college. And because I knew my free education was dependent on how well I did, I worked my butt off in college too. Bonus? That $20k got turned into a downpayment on a house, which would not have been an option (or at least the net amount would have been less) if it was in a 529 instead of savings bonds. Just sayin’. ;-)

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6 Mrs. Pop @ Planting Our Pennies September 17, 2012 at 8:44 am

Good luck with the 529. My friend got burned a little with the education investment account her parents had set up for her in that it was heavy in tech stocks, which crashed right before she needed it. Keep it diversified for the little guy so he won’t have any surprises!

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7 IV September 17, 2012 at 9:15 am

I think you should add another CON to the list. It is an investment and can lose value. You also have to pay management fees. To many people think it is just a big fat bank account with guaranteed income.

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8 Em September 17, 2012 at 9:51 am

this is not something we’ll be doing. Having another account for a what if my kids want to go to college doesn’t make sense. I went to college (for free luckily) and came out of it thinking it was a waste of 4 years and being VERY glad my parents didn’t pay a dime of it. My husband didn’t go to college and is doing great in his career path. He wouldn’t be doing any better if he had gone to college. So in our cases if we had those accounts opened for ourselves it would have been a big waste of our parent’s time and effort. Of course I’ll be saving for college but not in a 529

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9 Frank Salvato September 17, 2012 at 10:30 am

We choose to skip the 529 plan. We considered it in the late 1990′s and again around 2003. I’m happy I skipped. You missed the biggest “CON’ out there – that being, your “savings” may have dropped 10-30% less just when you needed them. The stock market is not savings.

We invested ours split into CD’s and A rated bond fund paying out 4.5% yearly and are thrilled. Had I investe din the 529 plan, I would have had 40% less money (assuming it went into a diversified stock fund) just when I needed it most around 2008-2009.

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10 Ed September 17, 2012 at 10:32 am

For us, we decided not to open a 529 for a simple reason — why should I start an investing plan today on behalf of [name your target school]? Think about it — the second you put money into a 529, it’s now the college’s money that you’re simply managing on its behalf. Value goes up? Great — you just earned more money for a school. It’s not your money anymore because you can’t use it for anything other than paying to a school. On a base level, I want to invest for myself–not the benefit of some other person/institution.

On a practical level, I also hate the investment restrictions placed on 529s and I can beat the returns of 99% of them… and I’m not worried at all about tax avoidance when rates are at historic lows. Benefits aren’t worth the loss of flexibility, at least for me.

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11 Kandace September 17, 2012 at 10:46 am

Check out UESP, Utah’s plan. They come highly recommended/rated, and I’ve been satisfied with our dealings. We’re saving for our kids but not the recommended and ludicrous amount you mentioned above. Debt, retirement savings first, then kids’ 529 plans. And to the comment above about it counting against the student when it comes to financial aid, it is my understanding that the accounts are in the parent’s name and will thus count as parent’s assets, not that of the student.

It is nice for grandparents to give some money for holidays/birthdays instead of unneeded toys. Our families know we have the 529s and give us checks for the kids in lieu of so many toys. Helps with college savings and household clutter.

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12 Joe @ Retire By 40 September 17, 2012 at 10:54 am

We opened the 529 account last year after the little guy was born.
One thing you missed on the list is that the 529 is transferable. If your first kid isn’t going to college, you can transfer it to your other kids or even nieces and nephews.
It’s a good investment for the future so just do it! :)

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13 Edward Antrobus September 17, 2012 at 11:11 am

My siblings and I participated in a scholarship league for bowling. I think just about the only reason my brother did a year of community college was to spend that scholarship money he’d earned.

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14 Mark September 17, 2012 at 11:28 am

I have a 529 plan that I’ve opened for myself. I think the chances of me going to grad school are under 10% (looking to do professional exams instead), so I will likely transfer the 529 plan to my future children, which is a great advantage of the 529. This also gives me a lot of extra years of compound interest.

I fail to see people’s logic above saying a big Con to the 529 is that you can lose money. The argument is if you want to use a 529 plan for college savings or a non-tax sheltered plan. Nobody says you need to invest in stocks in the account; you can just as easily be 100% in CDs or whatever fits your risk tolerance at that point. Plus as the child gets closer to getting to college, I’d want to have a very conservative asset allocation meaning that the interest income at that point would be completely tax fee (easily 25%+ tax break and possibly higher if rates rise in the future).

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15 Babs September 17, 2012 at 11:41 am

As others have already pointed out, you’re assuming that you will be stuck with 100% of the bill for your children’s education. Having a 529 will certainly make this true, as will having a lot of assets, which will likely be the case when your children go to college. The curse of being financially responsible is that the college will hold you financially responsible. BUT, you’re also assuming your children won’t contribute anything, and this might not be the case. They may turn out to be genuises and get scholarships. Or they may choose, as my son and I did, to enter the military and get multiple college degrees for free. (my son is working towards his bachelor’s and got 3 master’s paid for by the Air Force.) Or you may want them to contribute to their own education as a way to teach financial skills.

We elected not to have a separate pot for college, we just saved enough along the way to cover our retirement and college goals in one big pot, with a figure ear-marked for college. We picked a figure that was slightly less than the cost of a state school, so that our sons would have to make up the difference and have some “skin in the game.” A few years ago, that amount was $60K each. Then, we told our sons what that amount was and gave them this challenge: if they found another way to pay for college, we would “invest” that amount in them in another way. Our youngest son chose the military and has the GI Bill to pay for college , so we’ll be funding his IRA every year for 12 years. Smart son: he’ll be a millionaire with a college degree in the future! However, it will probably take him about 6 years to finish his degree, and he doesn’t make a lot of income as an enlisted person. Our other son chose to take our money and use student loans to cover the rest, so he’s learning valuable lessons about the curse of debt. However, he’s a double major in electrical/computer engineering, so he may have a fairly high lifetime stream of income to cover the debt and make up the retirement savings. We’ll know in a couple of decades which son chose most wisely.

If we’d set up a 529, we wouldn’t have had the flexibility to make this deal with our boys and we’d have lost the opportunity to teach them about investing in their own future in a meaningful way.

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16 LB September 17, 2012 at 11:50 am

I really don’t have an opinion about what you should do, because I don’t plan on having kids. I also don’t believe in telling parents what they should and shouldn’t do with their kids. I also am now on the hell now side of the fence about having kids. After seeing a few doctors and reading on the subject, there are just too many chances to have a baby with some type of problem. (Will leave the detail out of it.)

I would only go with a 529 if it saved me money and I could diversify it enough in case of another recession.

A Roth IRA sounds like a better idea in case the kid never went to college or if you wanted to use the money to help Baby $ build a business instead. You could also use it if child #2 wants college, while Baby $ goes and travels the world.

In short, life is full of surprises, so I would recommend saving the money, but keeping it ready for anything. Kids are surprising and so is the future and what it can hold for any of us.

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17 DC @ Young Adult Money September 17, 2012 at 12:01 pm

The cost of college is getting out of control. You might as well open up the 529 and start putting some money into it, and if you are lucky it will cover 20% of your kid’s college tuition expenses. Okay I’m a bit pessimistic :P But overall I’d say putting money into a 529 account is a good idea.

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18 Kevin @ Thousandaire.com September 17, 2012 at 12:04 pm

Another bad is that when a kid has a large 529 in his or her name, it reduces the amount of financial aid the child is eligible for. For the kid’s sake, you’re better off just saving that money in your own account and then paying their tuition if you want. That way they aren’t screwed out of scholarships or grants because they have too much in their 529.

With that being said, I think education is a huge bubble and if I had kids right now I would only help them pay for college if they knew they wanted a job that required formal education (doctor, engineer, teacher, etc). Any other skills they need, they’d be better off as an apprentice and finding courses to take online. My kids are welcome to waste 4 years of their life partying and learning about literature, but I’m not gonna pay for it.

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19 Chris September 17, 2012 at 12:05 pm

I had a CD started for me when I was a wee lad with an interest rate of 8.5% :). I had $20k when I turned 18, but I didn’t use it. I think you should save in an account that doesn’t require you to pay for school without penalties. I got a job and saved/worked through school to pay for tuition, rent, and whatever else. Now I have $20k fresh out of college and no student loans. After my less impressive 3% CD matures I’ll have a chunk of a down payment for a house. You never know what Baby $ will do!

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20 Angella September 17, 2012 at 12:08 pm

We were seriously considering opening a 529 for our son (he’s only 2), but opted to just open a savings account for now. I was turned off by the management fees we were coming across. A commenter above made a good point about scholarships too. I wouldn’t want to have a large sum of money in my kids name that may prevent him from receiving scholarships.

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21 MB @ 12 Year Career September 17, 2012 at 12:25 pm

Another vote in favor of using your Roth IRAs.

NB and I actually both have 529s for future kiddos and have been contributing to them faithfully for the past couple years, but are currently thinking about shifting those contributions to our Roth IRAs. We have limited investment choices in our 529s, limited number of times per year we can change our allocations, and no guarantee that college will be the best choice for our children. And, of course, no guarantee that we will even have children.

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22 Jacob @ iheartbudgets September 17, 2012 at 12:39 pm

I’m with a lot of others here, a 529 is like a store gift card. You can only spend it at that store. If you want cash back to use elsewhere, they take like 15% of you money and tax it anyways. I’m still on the fence about it as well, but at least you’ve got a plan.

It is a bummer that they could miss out on scholarship money, but with your net worth already, they probably won’t get any help, so might as well get the tax deduction and compound interest on top of that.

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23 Jenna, Adaptu Community Manager September 17, 2012 at 1:28 pm

What happens if the child can’t go to college (death or disability) does the money get forfeited?

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24 SMB September 17, 2012 at 1:36 pm

I’m confused by everyone saying that by the parent holding the money in their name it’ll allow the kid to qualify for needs-based scholarships. Maybe it’s changed in the 8 years since I applied to college – but back then needs-based scholarships were out of the question for me solely because of my parent’s income. They did not set up a 529 for me and instead just paid out of pocket, but either way, I couldn’t get a needs-based scholarship.

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25 Chris September 17, 2012 at 1:40 pm

@SMB that was true for me as well. Good way to tell, if you don’t qualify for a Pell Grant, you probably won’t qualify for a needs-based scholarship. It’s all based on the FAFSA which needs your parents tax information.

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26 Devan September 17, 2012 at 1:55 pm

If one of your children is fortunate enough to win a scholarship, you’d be eligible to take a penalty-free withdrawal from her 529 account up to the amount of the award. You would, however, have to pay federal and state income tax on the earnings portion of the withdrawal. To avoid those taxes, you could name another family member as beneficiary of the plan.

Check out the article from Kiplinger: http://www.kiplinger.com/columns/ask/archive/2007/q0423.htm

J, we just had a son as well. As soon as his social security came in we opened up a 529 plan with College Savings Iowa. Our brokerage accounts are managed by Vanguard so this 529 plans are managed by Vanguard as well. We like Vanguard due to the low expense ratio’s.

I highly recommend to start and don’t delay because that’s more money your son could use to pay for his education.

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27 Nicole C. September 17, 2012 at 2:27 pm

J. Have you even thinking of buying I Saving Bonds, in case, Baby J$ wants to be having his own business as you think :P ?
Tax Considerations for I Saving Bonds:
“Interest on savings bonds is subject to taxes imposed under the Internal Revenue Code of 1986. The bonds are exempt from taxation by any State or political subdivision of a State, except for estate or inheritance taxes.
Interest earnings are subject to Federal income tax.
Interest earnings may be excluded from Federal income tax when used to finance education (see education tax exclusions). ”
http://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm

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28 Christa September 17, 2012 at 2:45 pm

We also thought we’d 529 it as soon as Baby was born….three months ago! But I too suffered from the “529 or life savings” question. Now, I think a 529 is a good investment for the same reasons. But it is a lot to think about when you don’t even know your child yet, let alone know what she’ll be like in 18 years!

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29 ckphoto September 17, 2012 at 3:06 pm

Luckily I live in a state that offers a PrePaid college options. My DD was enrolled when the tuition rates were guaranteed. That money has never earned interest, but if I want to take it out tomorrow and buy a car, I can. She will also qualify for one of our state sponsored academic scholarships (which I counted on as I knew she would make the grades). The combined should cover tuition, books, fees, room and board. And she has no desire to go out of state.

As someone who wants to be flexible with my savings (as you seem to be), I refused to lock my money into a 529 account. There are many other options to save and earn interest without being locked into what you can spend the money on.

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30 Jen2 September 17, 2012 at 3:43 pm

We opened a MD 529 with the baptism money my son received and put $100 a month into the account. The account is in my name (and would be included in parental assets when applying for student aid), is invested in a target date fund that automatically becomes more conservative closer to the end date (anticipated college start date), can be used by anyone in the family, and we receive a state income deduction for all of our contributions. If my son decides not to go to college, it will be used on the next child, or even so that my husband or I could take classes. It sounds like a lot of people here don’t actually know the facts about 529 plans. MD is unfortunatley run by TRowe Price and has pretty high fees, especially if you don’t sign up for an automatic contribution, but we chose MD because we pay MD state income taxes. If your state doesn’t have that benefit you could chose any state’s 529 plan.

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31 J. Money September 17, 2012 at 4:47 pm

To answer a lot of your questions, yes – I plan on paying for my kid(s)’ college education 100% if I can, as my parents did that for me, and their parents did it for them. That being said though, of course we’ll try going for scholarships and grants, etc etc :) Maybe they’ll get a new car or house down payment or something if they can pull it off? I dunno, haven’t really thought that far ahead – all I know is that we gotta start saving for it all NOW before time escapes us. I can put things off like a pro ;)

@The Financial Blogger – Good point ;) Only the *best* survives sometimes! If my kid doesn’t become a soccer pro, I hope at least he can kick for the Redskins, haha… Or even be a bench warmer for that matter – it would be amazing ot play in the NFL for a living!
@Lance @ Money Life and More – See above :)
@jp – Yeah, that “financial aid” part is still foreign to me – not sure what’s true or not there as everyone says something differently… I do like the idea of having a separate account ste up though which you have 100% full acess to. Just not sure if the loss of tax benefits make it worth it *that* much or not?
@Brian – A 20% tax credit??? Nice!! That would surely help me to decide quicker, haha… good call :)
@Stephanie – All good things to think about for sure :) I still worked my ass off in high school and Summers too, even though my ride was fully taken care of, but I can see how others may not fully understand the amazing college gift like that. It also helps when your parents don’t give you any money whatsoever outside of their financial aid, so if you want to do ANYTHING fun or extra at all, it’s all on you. Which is probably what we’ll end up doing too.
@Mrs. Pop @ Planting Our Pennies – Ouch! I didn’t really think about the investments going down majorly like that, that’s a great point too – thx!
@IV – Yes! Very good to think about too, thank you! I did forget about that :)
@Em – Wow really? You don’t think you got *anything* out of college? I don’t think I’ve ever heard of that before… I hear people say they don’t thin they missed anything by not going, but not from someone who’s gone. That makes me sad :(
@Frank Salvato – Wowwww… yeah, I did forget about that – thx!
@Ed – Huh… very good to hear – I like that so many people are against them actually, I need this! :)
@Kandace – “It is nice for grandparents to give some money for holidays/birthdays instead of unneeded toys. ” YES! I like that a lot!! :)
@Joe @ Retire By 40 – I did know that actually, and like it a lot :) Especially if we have multiple kids because we can spread it around to all of them!
@Edward Antrobus – Hah! I haven’t bowled in forever. I miss it actually.
@Mark – GREAT POINT! I always forget you can usually invest in safer alternatives than stocks/funds/etc. Just like with Roths and 401ks and other retirement-like vehicles :)
@Babs – Love that!! And welcome back to the site – I’ve missed your parental guidance :) Thank you so much for sharing this with everyone!
@LB – I’d actually never considered Roth IRAs in my kids name before (if that’s what you mean?) so that’s def. a route to look into… gonna add it to my list for when I call up USAA – thanks!
@DC @ Young Adult Money – I’m hoping the bubble breaks at some point, but I’m not counting on it ;)
@Kevin @ Thousandaire.com – HAH! Someone who’s not a fan of college that much, I see ;)
@Chris – Good for you!! Starting out right, I like that. Thanks for sharing today :)
@Angella – Another idea is invsting in CDS or other safer alternatives too that don’t take out much management fees (if any) – something I had also forgotten about until a commenter here mentioned it :) 529s don’t always have to be about stocks/funds.
@MB @ 12 Year Career – Oh, so YOUR Roth IRAs then? Not one for the kids? I’m gonna look into maybe doing that too if possible… we already max out our own Roths so that wouldn’t help us much for our kids, but having one in their names may be a great alternative.
@Jacob @ iheartbudgets – I’m still not sold all the way in that it restricts scholarships/etc. I know plenty of people who got scholarships and have wealthy parents, but I’m sure it plays *some* type of role… guess I just need to research more there.
@Jenna, Adaptu Community Manager – No, you xfer it to someone else in your family or just take it out and pay the penalties. Or that would be REAL messed up! :)
@SMB – I don’t personally know anything about that yet, but I’d be glad to hear what others say more.
@Chris – Thanks!
@Devan – Good information!! Thank you!! I’m a fan of Vanguard too :)
@Nicole C. – I had not actually until a reader emailed me saying he did something similar :) Haven’t looked into it myself yet, but it’s a good time to do so – so thanks for the info!
@Christa – Haha, yup! Let me know what you guys end up deciding too – I’m curious :)
@ckphoto – The prepaid stuff scares me the most! Haha… but for certain circumstances (like you guys) I can def. see the advantages. I’ll let you know what we end up deciding :)
@Jen2 – THANK YOU!!! I think that’s a great question for me to ask right away – would I get any other tax benefits from the state with our 529 if we open it? I have a list of like 10 questions for them when I call, haha… and you guys have filled up 5 of them for me! Thanks! :)

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32 Jessica @ Faith Permeating Life September 17, 2012 at 4:51 pm

My parents had saved up for my college education, though I’m not sure whether it was in a 529. Then I got a full tuition merit scholarship to my school of choice. Someone said above that you can withdraw the amount of a scholarship from a 529, so maybe they did that or transferred it to their savings for one of my siblings’ colleges (both younger).

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33 Brent Pittman September 17, 2012 at 6:44 pm

I find it odd I didn’t see any mention of ESA or Coverdale Accounts. We sock the first 2K per year in these and will go to 529 if ESA are capped.

Another con of 529 is that many are operated by the states and with states going in debt, I expect fees to rise. I want more control of investments, so I stick with ESA—sadly Vanguard has stopped their ESA program, but I got in under the wire.

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34 J. Money September 18, 2012 at 11:29 am

@Jessica @ Faith Permeating Life – You know, I should actually ask my parents how they saved up for our educations? I wanna say they just did straight up stocks and cashed them in when it was time, but I could be totally wrong… Thanks for the reminder!
@Brent Pittman – Hah! Good point… not the best if the state is bankrupt ;) I’m surprised too that no one else mentioned others like ESAs or Coverdales – I guess they’re not that popular among our age groups?

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35 Virginia September 20, 2012 at 4:24 pm

Can a roth be opened in the child’s name? I would hate to have a 529 and get hit with the penalty and tax if little guy doesn’t want to go to college.

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36 J. Money September 21, 2012 at 10:36 am

I wasn’t sure myself, so I just Googled and came across this pretty good article from Kiplinger (it’s a few years old, but I’m sure it still stands… might want to just double check though):

http://www.kiplinger.com/columns/drt/archive/2008/dt080130.html

“..it’s worth emphasizing that in order to open a Roth the critical factor is earnings: A child can have a Roth IRA as long as he or she has earned income from a job. Birthday gifts from grandparents or interest on a savings account don’t count, nor does an allowance for doing general household chores. A W-2 form is the most straightforward proof of earned income. But earnings from a job such as mowing lawns or baby-sitting qualify, too.”

So, short answer: Yes, but only if they make money. For babies though? NO. Unless they’re geniuses ;)

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