Saving for Education

Updated on July 31, 2008
A.W. asks from South San Francisco, CA
8 answers

I am wanting to open up an education account for my 7mos old and wondering if 529 is really the best way to go. I also want something that is a liquid asset so I plan to open up a custodial savings account. Am I on the right path or should I do one or the other or neither? I've also been getting ads for those Gerber Life Ins. Are they any good? Any comments on those? Thanks in advance!

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answers from San Francisco on

A 529 plan is a real blessing, but it is meant for college or post secondary education only. This is the way it put in money and it grows tax free. You can take it out for a broad range of expenses for college or technical school (after high school). The question parents always ask is "What if my child doesn't go to college?" The answer is that the money can be given to another sibling or even to yourself as the same type of benefit. If you need to take out the money for another use, there will be a 10% penalty so be careful that you don't plan to use these funds for other purposes.

There are other custodial accounts that are available which can be used for education prior to college. However, these are taxed (at the child's tax rate). The disadvantage for these funds is that they become the property of the child at age 18 and they can choose to buy a Harley rather than go to Harvard!

I think you get the point! If not, come back with more questions.



answers from San Francisco on

Hi A.,
Our accountant set up 529 accounts for our kids. We contributed for one year. They continue to perform quite well. However...

There will always be someone (a bank) to loan us money to send our kids to college. No bank will ever loan us money to retire.

Now we contribute what we would have to their college funds into a private pension plan. Once our retirement accounts are adequately funded (which may never happen), we'll put the extra towards college. My parents paid all my expenses to go to college and I intend to do the same for my kids.

Good luck.



answers from San Francisco on

The great thing about the 529 is that you can use it for anything education related, not just college. If you decide your kid should go to a private school, you can withdraw the funds. The money sits there, grows, and as long as it's withdrawn for education, the withdrawals are tax free. Anyone can contribute up to $11k (is that the new gifting limit?) per year, meaning you, grandma, grandpa, and Uncle Jim can contribute a combined $44k in one single year. Not that it will happen. :o)

Other plans might be more restrictive on how much you can contribute per year. Also, you may be more restricted on what the funds are used for. Some plans only allow usage for tuition and room and board. 529 funds can be used for ANYTHING, like books, computers, etc.

529s are also great because they can be transferred to other people. Kid #1 decide they don't want to do college? You can transfer it to Kid #2.

One last thing that is great about a 529 is that YOU own the money. I would be wary of a custodial savings account. Once your kid turns 18 (or 21, depending on the account), the money is theirs to be used in ANY WAY they want. You have NO SAY. Again, THEY own the money. They want to buy a new sports car instead of pay for tuition? They get to. YOU own the funds in the 529, the child is the beneficiary.

Anyway, we decided to go with a 529 for the above reasons: we own the money, we can use it for other education besides college, it can be transferred to other kids, heck...even I could use the money if I decided to go back to school! I think there is an age limit though. I can't be 60 and going back to school. :o) Tax free withdrawals are nice to.

I don't know anything about Gerber Life Ins. I do remember looking at it and thinking it was a load of bologna.



answers from Sacramento on

We opened up a 529 plan for both of our kids. It's always a risk if they end up not going to college but the odds are pretty good I hope!!! Fter researching I think this is the best plan for education savings.

We also opened up a UGMA account through our brokerage firm. Here we can save for other things, other than education. We were able to set the age too I think. I think you can choose 18 or 21. We hope to raise the kids with good sense and just know that the money is theirs to do what they wish when they turn that magic age!!! This type of account will be counted against them if they apply for grants and such but we still felt it was a good choice for our family.
Hope this helps!



answers from Sacramento on

I agree with Jan a 529 is the way to go but make sure you have the money to fund it.

they can always get loans for school, we can't get loans to retire.



answers from San Francisco on

We also wanted to set up an account for our daughter and after a bit of research and an indepth conversation with our financial planner, we decided 529 was NOT the way to go. It is restricted to certain qualified education. If my child decides not to go to college and wants to head ina direction that does not require additional schooling, she would not have any access to those funds to get her life started. We decided to go with an UTMA, but there were a few other choices that we also liked. Email me back if you want more info, or my financial planner's info. He's great!


answers from Fresno on

We have both 529 plans and traditional educational savings accounts for both of our kids. The thought is, if we need to pay for private high school we can use the traditional plan for that, and then the 529 for college.

I would advise against life insurance on a child. It doesn't make sense to insure a liability (and let's face it, kids cost a lot more money than they bring in!). Insurance companies will tell you that if you buy a whole-life plan, then your kids can cash it in when they hit a certain age, but you are MUCH better off investing the money yourself (into a mutual fund or whatever). A whole-life plan is only a savings vehicle where the insurance company invests the money for you. But the rate of return is lower than what you would get going through a regular brokerage. The only way you could possibly benefit financially from this is (god forbid) if your child dies at a young age. That is extremely unlikely, fortunately, so it is not a great financial move to buy life insurance on your child. You should, of course, have term life insurance on yourself and your husband.

As long as you're setting up a 529 plan, just ask your investment adviser to set up a savings plan, and then pay into it like you would have paid on the life insurance plan. It is a fully liquid asset that you can borrow from at any time, which is what I think you're looking for anyhow!



answers from Sacramento on

Hi A.,
Sorry for such a late response. If you haven't already taken care of your child's 529 Plan, I can help you! I can put together a plan for your entire familie's financial future which includes saving for college. I can help you free of charge......yes! I know, nothing is FREE! All that I ask is if you find value in what I do and how I help people, all I ask for is for warm referrals! You can visit for more info or you can call me directly, ###-###-####. Looking forward to hearing from ya!

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