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What's the best way to start a college fund?

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What's the best way to start a college fund?

Old 12-24-05, 11:45 PM
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What's the best way to start a college fund?

I have some money set aside for my son's college fund (he is 16 months old). I wanted to put it in a dedicated account somewhere but I wondered what type of account I should look at using. I remember hearing something about Education IRAs, does anyone know about them or have any experience using those?

My dad also told me I could open a custodial account for my son using his SS#, and that any interest he accrues would be under his name and I would not have to pay taxes on it. (And since my son has no other income the interest would probably be too little to owe taxes on).

I guess I am wondering if I should put the money in a high-yield savings account, money market type account, or some type of mutual fund/IRA. I guess we have quite a few years to compound interest but I would not want to put the money into something too risky since he will need it in about 17 years. I'd like to be able to make automatic monthly or quarterly deposits, but I am not too worried about the liquidity as I plan to stash the money away and not touch it until my son needs it for his education.

Thanks for any advice.
Old 12-24-05, 11:54 PM
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some sort of tax free mutual fund
Old 12-25-05, 12:04 AM
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google 529 plan

i think if you choose your state's plan you get a nice tax break
Old 12-25-05, 12:23 AM
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http://www.dvdtalk.com/forum/forumdisplay.php?f=46
Old 12-25-05, 12:25 AM
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Thanks, I found a USA Today article with a chart that ranks all the state plans, and apparently Michigan is one of the best ones out there, so I guess it would make sense to use that.

If anyone is interested, here is the article:
http://www.usatoday.com/money/covers...lege-plans.htm

The article is a few years old, but it looks like the fees and everything are still the same from what I have read at the state plan's web site. I was a little leery about using a state sponsored plan, but apparenntly Michigan has a very good one.
Old 12-25-05, 12:27 AM
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Tell him to get a job.

Old 12-25-05, 12:22 PM
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The downside of putting things in his name is that (as of now) it will count more against him if he is applying for financial aid.
Old 12-25-05, 03:17 PM
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I am in Virgnia and am buying both my children a state prepaid plan. I have already purchase the one for my 6 year old and it was painless (well except for writing the big ass check)

I plan on purchasing one for my now 2 year old next year.

Unless you "play the market" on a regular basis and are excellent at it, you won't beat the prepaid plan with the skyrocketing costs of tuition.

I pay for 4 years of tuition today and that covers 4 years of college tuition in 12 + years no matter what the cost. I am guessing I will make out like a bandit.

That and VA has some really excellent state operated colleges.
Old 12-25-05, 03:42 PM
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4KRG, what if your kid doesn't want to go to college?
Old 12-25-05, 07:11 PM
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Originally Posted by Deftones
4KRG, what if your kid doesn't want to go to college?
I know you are , but just to answer

Then I get the money back with interest and get to throw one hell of a kick my kid out of the house party (or I can pass on to another child or related family member, cousin, etc)

Other people have asked me, well what if your kids don't want to go to school in VA? I say if the spoiled shits want to go somewhere else, they can cash out the fund with interest and they can pay the rest.

College is a privledge and not a right, I am making sure my kids have a chance to go to good schools if they choose to, but I am not going to ruin my retirement to do it
Old 12-25-05, 08:13 PM
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Rob a bank
Old 12-26-05, 01:39 AM
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529 plans are always good, but when the child gets to college they will know about the fund and it may hurt their ability to get financial help.

The alternative is to put the money in a good no-load mutual fund in your name and just pay taxes on any dividends / longterm/shorterm gains as you go along. The tax rate for long-term capital gains is currently 15%.
Old 12-26-05, 02:16 PM
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Originally Posted by Heat
529 plans are always good, but when the child gets to college they will know about the fund and it may hurt their ability to get financial help.
Wait. While other people's money is nice, the OP wants to know how to set aside his own money for their kid. A 529 will do that in a tax-advantaged vehicle specifically designed for these type of expenses. I applaud the OP for being a forward thinker and for taking responsiblity for the kids' future.

Since one can NEVER count on financial aid, folks who want their kids to go to college and who have the means to set something up for them should IMO go right ahead and do so without regard for the impact on their kid's eligibility for financial aid.

Not trying to slap you around, just trying to point out that the priority should be financing the kid's education.

Last edited by kenbuzz; 12-26-05 at 02:20 PM.
Old 12-26-05, 02:17 PM
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PS - Paying taxes as you go on a no-load mutual fund and 15% on the final amount in capital gains pales against investing the same money AND the taxes you'd pay AND the 15% CG tax in a 529, which grows tax-free and can be used for college expenses tax-free 18 years from now.

Here's a calculator that compares 529 to non-529 investments... http://www.smart529.com/common/calculator/calc.html. If you've got 16 years before college starts and assume an average 4-year in-state tuition, adjsted 6% per year for academic inflation, nothing in the bank today, and a 15% federal tax bracket (married, one earner), you'd need to set aside $230 per month in a 529 versus $258 in a non-529 to have the $89K you'd need for college. The extra $28 may not seem like much, but if that were invested in the 529 instead of being paid in taxes, you'd have an extra $10K for college. The difference is even greater if the saver is in a higher tax bracket.

Last edited by kenbuzz; 12-26-05 at 02:43 PM.
Old 12-26-05, 02:51 PM
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Everytime you go to Starbucks, instead of buying a Grande buy a Tall and put the money you save into a jar.
Old 12-26-05, 03:01 PM
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Robbing a small credit union comes to mind.
Old 12-26-05, 03:24 PM
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Originally Posted by 4KRG
I know you are , but just to answer

Then I get the money back with interest and get to throw one hell of a kick my kid out of the house party (or I can pass on to another child or related family member, cousin, etc)

Other people have asked me, well what if your kids don't want to go to school in VA? I say if the spoiled shits want to go somewhere else, they can cash out the fund with interest and they can pay the rest.

College is a privledge and not a right, I am making sure my kids have a chance to go to good schools if they choose to, but I am not going to ruin my retirement to do it
Ok. I was asking semi-legitamately. I figured you could probably pull the cash out, but didn't know if there was a fee or penalty involved.
Old 12-26-05, 05:36 PM
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Originally Posted by cross
Everytime you go to Starbucks, instead of buying a Grande buy a Tall and put the money you save into a jar.
or better yet, go to a local coffee shop that has one bigger than a starbucks grande yet cheaper than the starbucks tall
Old 12-26-05, 11:06 PM
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Or, since you are in Michigan, just move to Kalamazoo. The recently announced "Kalamazoo Promise" will put EVERY public school student who has been in the public school school system prior to high school through a Michigan public college for free (actually, the length of time spent in the system determines the amount of tutition paid for). If the boy starts in kindergarten (assuming the "Promise" is still up and running) he'll get four years FOR FREE.
Old 12-26-05, 11:38 PM
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Originally Posted by Heat
529 plans are always good, but when the child gets to college they will know about the fund and it may hurt their ability to get financial help.

The alternative is to put the money in a good no-load mutual fund in your name and just pay taxes on any dividends / longterm/shorterm gains as you go along. The tax rate for long-term capital gains is currently 15%.
personally i don't plan to pay for every single penny of my kid's college

i plan to help the kid with at least 30%, but the rest he is going to take out student loans or join the military for the college money. I'm even thinking about making him pay for everything in school and than paying off the loans once the kid graduates as an incentive.
Old 12-27-05, 12:13 AM
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Originally Posted by Croissant!
Or, since you are in Michigan, just move to Kalamazoo. The recently announced "Kalamazoo Promise" will put EVERY public school student who has been in the public school school system prior to high school through a Michigan public college for free (actually, the length of time spent in the system determines the amount of tutition paid for). If the boy starts in kindergarten (assuming the "Promise" is still up and running) he'll get four years FOR FREE.
Good idea, but would hate to see this plan fail with no backup plan.
Old 12-27-05, 01:31 AM
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Originally Posted by kenbuzz
Wait. While other people's money is nice, the OP wants to know how to set aside his own money for their kid. A 529 will do that in a tax-advantaged vehicle specifically designed for these type of expenses. I applaud the OP for being a forward thinker and for taking responsiblity for the kids' future.

Since one can NEVER count on financial aid, folks who want their kids to go to college and who have the means to set something up for them should IMO go right ahead and do so without regard for the impact on their kid's eligibility for financial aid.

Not trying to slap you around, just trying to point out that the priority should be financing the kid's education.
Thank you. Although I am a "she".

I am not that concerned about eligibility for financial aid since most of the time, "aid" is really just student loans and I don't want to set my son up to be in debt if I can avoid it.

My dad paid for my college and I was always so grateful I never had to take out any loans. That is why I plan on passing on the favor to his grandson.

I signed up for the automatic investment plan with the 529 and will be investing $100 per month. That and other periodic investments (or future birthday presents from other family members) should be a good start compounded over time.

Last edited by Jadzia; 12-27-05 at 01:33 AM.
Old 01-18-08, 07:12 PM
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Sorry to bump an old thread, but I'm curious how this has been coming along.

I'm interested in this and Texas has these: Lonestar 529 Plan, Texas College Savings Plan and Texas Guaranteed Tuition Plan. However, the TGTP is no longer accepting applications. I'm guessing the difference is with these two is one does the investing for you while you have to do it for the other. But I'm clueless and get lost when I see big words. heh Both my boys (4 and 6yrs old) have their own Savings Account and their dad has a mutual fund (that he has to keep according to the divorce decree) for the oldest. I suppose I need something that says, "do this like this" and voila!
Old 01-18-08, 07:58 PM
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I went Coverdell as opposed to a 529 plan.
Old 01-18-08, 08:02 PM
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Check to see if your state has a specifi 529 type plan. Washington has a guaratneed tuition plan that we set up for our boys. The money grows tax free. The nice thing on the WA plan is that you buy points. 100 points is equal to the highest state school tuition and fees, and you can buy up to 500 points. So, some can argue that a self directed 529 can go up more than what the costs of their points do, but then you have a year in the market like we just did, and tuition will go up anyway. I did it just for the peace of mind and not having to worry about the market.

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