Anyone Have Advice on Saving for Children's College? 529 Plans?

Updated on July 17, 2007
R.L. asks from Lewisville, TX
16 answers

Looking for information on saving for children's college. Family gives money for kids birthdays and Christmas and I want to start something just not sure where to begin. I know there are limitations to the 529 plans so I'd like to hear opinions on whether it's a good or bad choice. THANKS!

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So What Happened?

Thank you all so much for taking the time to respond...Your input has been very helpful. After reviewing many of your suggestions one being the savingforcollege website, I plan on checking into several of the out of state programs before making a final decision but I am definately going with the 529. I keep reading that by setting it up yourself, you will save on extra fees charged by brokers and most state programs seem quite simple to do yourself with little fees attached. Unfortunately TX doesn't have one of the better programs. Again, thank you all for your time and thoughts.

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answers from Dallas on

We went with the 529 but it def. wasn't for Texas. Look into Nevada as that may be one of the better ones.



answers from Dallas on

If you call someone at say, Edward Jones, or another financial group, they will more than willingly talk you through the details. There are a lot of choices, and you want to be totally informed. to

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answers from Dallas on

Each state offers its own 529. If you use your state's own plan then usually you get tax incentives on your state income tax. Since TX doesn't have state income tax there isn't an advantage to using Texas' plan. You can compare the plans at At one point Money magazine evaluated the state's plans and reccomended Utah's plans for return and low fees. You don't need to go through a bank to enroll - you can go directly to the state plan's web site and enroll. I enrolled my kids directly in Utah's plan. As far as them not being a good deal - I'm not sure I agree with that. Check out this article:

In addition to the info mentioned in that article the money technically is still yours in a 529 vs your childs in a UGMA. When it comes time to figure out financial aid your assets are taken into account at a lower rate (5%) than your child's (35%)

1 mom found this helpful


answers from Dallas on

You should invest in an Educational Savings Account (ESA) before the 529 plan because the ESA will grow tax free. You can put a maximum of $2000 per year into an ESA and you can open one for each child.
We got that advice from our financial advisor who we found through Dave Ramsey (who wrote the Total Money Makeover). You can go to If you type in ESA in the search box at the top ~ it will take you to an area that shows why he recommends ESAs before 529s. We're big Dave Ramsey fans and have followed his Baby Steps plan for about a year now.
Let me know if you have any questions and good luck!

1 mom found this helpful


answers from Dallas on

You know, you can start these college savings plans at your local bank, if it is a larger branch. My mom works for Guaranty and has one for our son. We bank at Compass and have another as well. They are both through Franklin Templton, a large investment firm that we also have a mutual fund it, so they do just about everything in this area. There are a couple of ways you can do it, but the one that I'm familiar with is you open with a set amount of money, I think around $200, and they draft, at minimum, $50 out every month. You can make as many deposits as you need, at least we've never run into any limitations on that. Good luck and great job planning ahead!


answers from Dallas on

Hi R.,

We just did this for our 18 month old. We used Nasmi Morales with AXA Advisors...he is a great financial planner! The great news is this kind of account can be as flexible as you want it to be, or as set the can be a regular monthly amount, or just however much you want to throw in from what I understood of it. Anyway we just started out little ones with money from her Birthday & Christmas, plus a little more from us. He was so helpful with this process. He can even check into the schools you think your child might be going to and what it is projected to cost the year they will be going. Pretty awesome stuff! His number is ###-###-#### if you want to give him a call!




answers from Dallas on

I've been out of town and haven't read my daily mama source emails...sorry.

We've been looking into college savings plans a lot lately and my brother was able to help with all the details. He is very knowledgable -as he should be since he owns his own investment firm. If you would like-give him a call and he would be happy to answer all your questions and tell you the different options out there. His info is below:

Andrew Rawlings
his website is


answers from Dallas on

We went with 529 for our daughter. Yes, it is for educational purposes only BUT if she does not use it all.... HER children can use this money as well for education. If she does choose to take money out of it she will be taxed and she can weigh the importance of that when she is making the decision.

She is 12, fully funded, and can rest assured if the stock market crashes, or some other financial problem arises....she still has her money.

I recall when I went to college (a long time ago) that some friends' parents had saved for them but at the time things got bad and these kids ended up with nothing to go to school, I always thought that was so unfair to the children. My hubby and i were fortunate enough to go to college on scholarships and have families that planned ahead. We started daughter's plan before her birth and made a choice that we would sacrifice now to make sure she is set when the time comes for her to go to college. Scholarship or not, the money is there for her and her children.


answers from Dallas on

We just set up 529's for both of my girls (ages1&3). It was very simple. We went through Edward Jones...Jeff Jensen. He was VERY helpful, I could give you his number. Basically the only real limitation is that the money must be used for "college" The term is used loosly for now, but who knows what will change be the time our kids are college age. My question was...I hope not...but...what if she doesn't go to college? You can transfer the money to another child or yourself/spouse...someone in your family, but it still has to be used for college. You can't just get it out and give it to the child. Hope this helps. Good Luck! Happy Saving!!



answers from Dallas on

I chose the 529 plan route for a several reasons:

1) The money grows tax-free.
2) The initial investment and monthly minimum for automatic Periodic Investments was lower than a regular mutual fund.
3) The funds in the 529 do not "count against" my child when she will apply for federal grants like a UTMA would.
4) The money is mine to control and won't become hers when she turns 18 like a UTMA would. That way I can ensure the money is used for college expenses and not a new Mustang.

The only drawback is that 529 money is for college only. The money can be used for other purposes, but you do have to pay taxes and a 10% penalty (similar to premature distributions from an IRA).

If you choose the 529 route, be sure to check into what that plan covers. The plan I chose covers room, board, books, fees and tuition. Some plans cover less.

Although I do not have a UTMA account for my daughter at this time, it is something I would like to start in addition to the 529 plan. The UTMA would allow me to put aside money for her for a car, a computer for college, and lots of other little expenses that would pop up. As long as the money is taken out for her "use and benefit" it's fine and legal.

Research. Ask questions. Talk to a financial advisor or go to a website like Some discount brokers, like Fidelity (, also have a lot of good information on their websites.



answers from Knoxville on

The tax rules are changing dramatically for UGMA's with the 2008 tax year and they no longer hold the benefit they once held. Because they provided such a great loophole, Congress closed it right up.

UGMA's are taxed to children, which often provides tax breaks, especially to parents in a higher tax bracket. There is no tax for UGMA's up to $850. After $850, the 'income' to the child is taxed at 10% (the child's tax rate). After $1300, the 'income' is taxed at the parent's tax rate -- which depends on your income. Remember, too, that this is ANNUAL income tax. As the investment grows and earns, you will pay tax on it annually. Congress determined that children will pay tax this way until either the child is 19 or, if a full time student and claimed as a dependent, until child is 24.

On the other hand, 529's are not subject to these annual tax rulesBetter to seek out a more traditional college plan for the long term. Gains and income in these accounts are not taxed annually, and if you use the 529 money to pay college-related expenses, the funds are completely tax-free.



answers from Dallas on

Not to TOTALLY confuse you but my inlaws were accountants for YEARS and have found that the best way to save for our 1 yr old is mutual funds - We are with American Century and they are thrilled - The program is new opportunites 2.

With kids you have the ability of being risky - our little one will earn 7% - 15% per year and not have the tax disadvantages that an annuity will have.

If you want more infor email me at



answers from Dallas on

These are all good suggestions. R., I'd be interested in learning what you and yours decided on. We just had our son in December.

I feel it is never to early to start looking ahead to the future. One thing is certain. It is doubtful that the cost of education will decrease as we go on.

All the best,




answers from Dallas on

We have both our kids (ages 4 and 18 months) on the Gerber Growup Plan. It is really good. Call them or go online to see the different options.



answers from Dallas on

My mom is a financial planner and strongly advised against the 529 because of its limitations. Instead she set up UGMA (uniform gift to minor account) for my two boys. The great thing about it is that you can us eit for anything for that child in the event that they are scholarshipped or if they decide not to go to college (yikes-we never want to think about that!) Anyhow, they are great accounts to have - I think the minimum to open it was like $50 and you can chose to contribute monthly or just to make lump sum deposits. The 529 just did not fit into my needs for my sons future - if he gets a full scholarship then I would want him to be able to use the money to put a down payment on his first home or buy a car or something. Just food for thought!



answers from Dallas on

We have a daughter who is turning 18 next week and we have invested in a 529 plan with Merrill Lynch since the inception of 529's.

We are happy with the plan, since the money in there is tax free, and has grown.

These are the caveats (buyer beware statements) that you need to mull over first...

1. the money is to be used for a qualified college/university (meaning no internet diplomas or programs)

2. if your child decides to be a world-traveler and never attends a college/university, then getting your money out carries a stiff penalty.

3. if your child decides to attend a college/university overseas, the 529 account can't be used for out-of-country secondary education (at this time - that could always change, but I doubt it)

BUT, HAVING SAID ALL OF THAT>>>>>>>>>>>these are good things about it:
1. Tax free earnings on the money
2. If your child earns a scholarship to a college/university, then you have the option to take your money out of the plan with no penalties (you can remove UP TO the amount in the account that was awarded as a scholarship to your child)
(that happened to us - our daughter won a full scholarship worth $125,000; so we could have taken out the money saved, but we decided to leave it in because she wants to go to graduate school and that costs $50,000 p/year...)
3. I would NOT do the other plan mentioned (with a max of $2,000 a year - that is only $36,000 by the time child is 18 and that won't cover one year... Get one that you and your other family members can place into it what you want, or need. You never know - we had a relative give our daughter $10,000 on her 10th birthday to save for college!)

All in all - we are happy with the 529 plan - BUT if the child changes mind and doesn't go, then you pay penalties to remove the money - that was the biggest fear. You have to know your child - not all kids go to college, or STAY there past freshman year.

Hope this information is helpful to you!!

K. D. ~~ WOW Wine Events

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