A.E. asks from Saint Paul, MN on January 11, 2009
Savings for Junior
My hubby and I have received some cash gifts for various occasions since our boy was born. We've just been tucking them in his "piggy bank" so far, but now that the pot is up to a few hundred dollars, we'd like to stash it somewhere where interest can accumulate. Any ideas beyond a basic savings account (since that would get him next to nil in interest)? Are CDs a good idea? Or should we wait until we have enough to start a Roth IRA? Would love to hear about what others are doing.
1 mom found this helpful
K.M. answers from Madison on January 12, 2009
Depends what you want to him to use it for.
ING direct - 2.75% interest rate on savings - better than any bank, hands down.
UPROMISE is a 529 account (education growth fund) to save for college.
CD's would be more maintenance, I think. The other two would be on auto pilot.
T.N. answers from Minneapolis on January 12, 2009
You might want to consider savings bonds. The series I right now is earning over 5% interest, but it can change. When I was growing up I had relatives that bought the series EE for me and I was able to use that to pay for the community college that I went to.
J.A. answers from Omaha on January 12, 2009
Good for you! There is no better time to start saving. The 529 is a good plan and the best thing you can do is to do something, anything. Someone said to me long ago, you either have lots of money or lots of time to earn money. Most of us have more time than money and with kids, they have even more. We use a 529, a savings, buy a few stocks on their birthdays (Toy R Us, Disney etc) and we do have Roth IRA. You would have to talk to someone about this, but if I am not mistaken, your child has to have earned income to have an IRA. We fortunately are in this situation (both girls are doing some local modeling) and have taken advantage of it. The great thing about a Roth, is that is can be used for education with little or no penalty. The 529 is great, but is does have to be used for education. Another note: only open one 529, as you don't need one for each child, if you have more children. The first to college can use their share and the rest is then used for the next child etc.
The market is down right now, but you have to look at it as if everything were on "sale", as everything is down and the market will recover. The best thing is that if you open some sort of account for retirement for you kids, they will have a life time of interest with just a little money. Put it away and don't touch it. It will make a difference! Also, kids can use student loans for education, but you can take out loans for retirement, so the sooner you tuck something away for that stage in their lives, the better off they can be long term.
1 mom found this helpful
M.R. answers from Madison on January 12, 2009
An option to consider is opening a 529 account to save the money for college tax free. The minimums are very low on these types of accounts and earn interest. The best part is when you go to take the money out in 18 years for college you don't pay tax on the earnings. Depending on your state, you have different options. You can ask at any bank near you and they shoudl be able to help, or google your state name and 529.
If you are set on a savings account type of set up, look online. ING and HBSC both offer internet savings accounts (they are linked to your checking account) that have rates around 4% (which is high for savings accounts). I personally have used ING for over 7 years and highly recommend it.
K.B. answers from Milwaukee on January 12, 2009
My hubby and I were also talking about starting a saving for our daughter but we have not done anything yet so no adivce on that. We are looking into a college saving program that is through our local bank. I would sit down with your bank and have them talk you through what they have to offer.
My in-laws have gotten United States Saving Bonds for our daughter... $100 at birthday $50 at Christmas, so it will slowly add up. I honestely do not know all the details behind it but my in-laws are very savy with money so it must be a good start.
A.F. answers from St. Cloud on January 11, 2009
Hi A.! We began investing very early with our son. We started with a CD and when we had more $$ we put it in an IRA. The thing is that you don't want to wait on investing. If you don't have enough to put into and IRA do the CD. At least you would be drawing interest!
You can also do multiple things like a savings account that you regularly put small amounts in, plus investments. That way, before you know it you will have built the savings account up enough to make invest MORE!
Good for you for investing in your child's future!
Edit*** I read the other response and thought I should add that you can get a CD starting at $500.
E.B. answers from Duluth on January 12, 2009
I would say it depends on how you view your finances. If you simply want to get the most out of your money, a Roth IRA is your best bet, especially if you don't have one opened yet. But...if you're in a situation like ours--we have two boys and one IRA opened already, and would like more children--piling all that money into an IRA means that our children would not have distinct accounts for "their" college money, as only an income-earning individual can have an IRA (or maybe it's an adult? I'm not working right now, but I have one. Anyway, I KNOW my kids can't have one.) As far as earning interest and being sheltered from taxes, the Roth is definitely the way to go. Be sure you shop around and find one with the best rates; they vary quite a bit. We are also looking at a 529 plan, which seems to be the most flexible education account available. We do our finances through Thrivent Financial, and they only do the Nebraska plan, meaning we wouldn't get tax advantages in MN, but on the other hand, they've researched the "best" plans and that's the one they've come to. So...if you're comfortable lumping all potential children's money together with what might even be retirement money, I'd say do the Roth. If not, find a good 529 plan--anything that will give you an interest rate that supercedes inflation.
Ohh--someone mentioned penalty on an IRA...the penalty is pretty minimal; we've been to a number (5? or so) different financial advisors and they've ALL recommended the Roth over a 529 IF you don't plan to max out a Roth on your own, for your own retirement. IF you and our husband can contribute the max (5000? this year) to each of your Roths, you should really save that money for your retirement. If that's not possible, then a Roth is a great place for your kid's college; it gets a much better return than the 529. As for online banks--they get much better interest than brick-and-mortar, but they don't compare at all to a Roth--neither does a CD.
D.D. answers from Minneapolis on January 12, 2009
I would check with your bank on this, but CD's are probably a good option- especialy in this economy! I think they vary in how long you let them grow- the longer you leave them, the more interest they acquire. Good luck!
M.S. answers from Madison on January 13, 2009
We have used the Edvest 529 plans. Contributions to the plan are tax deductible (just like Roth). The funds are available for educational expenses only but can be transferred to anyone in the family (I think) as long as the expenses are for education. So if one kid ends up not needing them for whatever reason, you or your other children can use. The definition of educational expenses is fairly broad as I recall. I would definitely look into that option.
S.K. answers from Minneapolis on January 12, 2009
We did a 529 savings plan for college. The account is non-taxible, but the money can only be used for college related savings. We have had it since 2001 and generally, it earns interest well. Now isn't the best time to ask because we have lost some money in it due to the economic fall out. But because our children are still little, there is plenty of time for a recovery before we need to actually use the money.
Despite how scary the economy is right now, it really is the best time to invest in something like this because you can catch the economy on the upswing and get a good return.
Another trick our financial advisor gave us for the future: Let your child take out student loans even if you have enough cash to pay for college. Why? Because the interest doesn't start accumulating until he graduates so that money can continue to earn interest for an additional four years. And when he does pay it off with the 529 money after graduation, it contributes to his credit rating and he is in a better position to take out a loan for a home, business, car, etc.