1 year, 9 months ago
via credit-qna.com
What are the best ways to save for your child's future?
I have already started small investments like a savings account, bonds, etc I wanted to know specifically for my child's future and education-is there any early investments that I can begin? Are 529 college plans the way to go? Or perhaps investing in some long term stocks?
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M$4 Answers
Hello @shewolfsilver! I think you are on the right track when it comes to saving for your child's future. You are one smart parent.
According to the article I have read online saving on 529 refund is one way to ensure the future of your child. For this is specially designed for college savings plan and duly authorized by the I.R.S. so that parent will be able to save for college without having to pay state or federal taxes on the gifts. Actually this is considered the best way to save since you are assured that the money will be used for their education in college.
You have mentioned already opening a savings account. To add on to this, use the Rule 72 to double your investment. This will work for you when you put money into savings account with a compound interest. If you are going to divide 72 by the interest rate, the answer to this would be the number of years that will take for your money to double.
Another way to save and invest for your child's future is to give tax-free gifts for their future. This is a smart way to leave money as an inheritance to your children because this is tax free. By giving tax-free gifts your taxes will be lessened and at the same time help them.
You can also buy certificate of deposit or what they commonly referred as CD. These are time deposits with a fixed interest rate that are held for certain periods of time until they are withdrawn. This is a great way to save also for the future of your child for this can be rolled over and over again making you more money.
According to the article I have read online saving on 529 refund is one way to ensure the future of your child. For this is specially designed for college savings plan and duly authorized by the I.R.S. so that parent will be able to save for college without having to pay state or federal taxes on the gifts. Actually this is considered the best way to save since you are assured that the money will be used for their education in college.
You have mentioned already opening a savings account. To add on to this, use the Rule 72 to double your investment. This will work for you when you put money into savings account with a compound interest. If you are going to divide 72 by the interest rate, the answer to this would be the number of years that will take for your money to double.
Another way to save and invest for your child's future is to give tax-free gifts for their future. This is a smart way to leave money as an inheritance to your children because this is tax free. By giving tax-free gifts your taxes will be lessened and at the same time help them.
You can also buy certificate of deposit or what they commonly referred as CD. These are time deposits with a fixed interest rate that are held for certain periods of time until they are withdrawn. This is a great way to save also for the future of your child for this can be rolled over and over again making you more money.
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M$
529 Savings plans are my favorite option to save for children's college education. A 529 plan is just a type of tax-advantaged account, you can purchase different types of investments (like stocks, bonds) to go 'inside' it.
Each state offers a different 529 plan (you can use any state's plan, regardless of where you live.) Look at both your home state's 529 plan (they often offer tax breaks for residents) and also the Utah plan (my favorite for everyone, regardless of their home state.) Vanguard's plan (found at vanguard.com), which is sponsored by Nevada, is also excellent.
You want a plan with low fees (expense ratios under 0.4%; the lower the better) and a good choice of index funds. The Utah & Vanguard (Nevada) plans have both of these. These plans also have Target date funds which change their asset allocation (% of stocks relative to bonds & cash) over time so that your child's funds become more secure as they get closer to college. Pick one of these Target funds that starts out aggressive when your child is young (i.e.: all stock) and conservative when your child reaches college age (i.e.: mostly bonds and/or cash.)
You can read more about college savings options at my personal finance blog here:
http://wordsofward.wordpress.com/2009/08/06/saving-for-college-where-should-you-put-your-money/
- Good luck!
Ward Williams, Registered Investment Advisor in the state of Washington
Each state offers a different 529 plan (you can use any state's plan, regardless of where you live.) Look at both your home state's 529 plan (they often offer tax breaks for residents) and also the Utah plan (my favorite for everyone, regardless of their home state.) Vanguard's plan (found at vanguard.com), which is sponsored by Nevada, is also excellent.
You want a plan with low fees (expense ratios under 0.4%; the lower the better) and a good choice of index funds. The Utah & Vanguard (Nevada) plans have both of these. These plans also have Target date funds which change their asset allocation (% of stocks relative to bonds & cash) over time so that your child's funds become more secure as they get closer to college. Pick one of these Target funds that starts out aggressive when your child is young (i.e.: all stock) and conservative when your child reaches college age (i.e.: mostly bonds and/or cash.)
You can read more about college savings options at my personal finance blog here:
http://wordsofward.wordpress.com/2009/08/06/saving-for-college-where-should-you-put-your-money/
- Good luck!
Ward Williams, Registered Investment Advisor in the state of Washington
You can leave an optional "tip" with Mahalo's virtual currency, Mahalo Dollars. If you are asking a difficult question that might require some research, or if you'd like a wide variety of feedback, a higher tip often leads to more answers to your question.
M$
I'm copying this from a response I posted to someone else's question earlier today since the same information applies:
There are a few attractive saving account options. One type of program is the Coverdell Education Savings Account (ESA). Another is a 529 account.
With an ESA, you may contribute $2000/year into the account (and may have multiple accounts, one for each child). If not used for your child's education, the money belongs to the child (not to you). The account must be fully withdrawn when the child reaches age 30. The account allows you to make contributions after tax and any income earned on the account while invested is tax-free. It works very similarly to a Roth IRA. As I understand it, you may choose to invest in whatever investment choices are available from the provider, which will often include stocks and bonds mutual funds. This type of plan is very attractive if your family is in a reasonably high tax bracket (>15%) Here is a list of companies that offer ESA accounts with low fees http://www.savingforcollege.com/coverdell_esa_providers/
A 529 account is operated by a state or educational institution. Saving in your state's 529 plan does not limit your child to only using the money for state schools. It can also be used for out-of-state schools. Like the ESA, your contribution is made after tax and the income on the plan grows tax-deferred for federal purposes. Withdrawals are tax free for federal taxes. Withdrawals may or may not be tax-free for state taxes. You retain control of the funds and if your child doesn't go to college, you can get the money back (but will pay taxes and may be subjected to penalties). You can change your investment options and there are VERY high limits to how much you can invest (up to $300,000 in many cases).
There are a few attractive saving account options. One type of program is the Coverdell Education Savings Account (ESA). Another is a 529 account.
With an ESA, you may contribute $2000/year into the account (and may have multiple accounts, one for each child). If not used for your child's education, the money belongs to the child (not to you). The account must be fully withdrawn when the child reaches age 30. The account allows you to make contributions after tax and any income earned on the account while invested is tax-free. It works very similarly to a Roth IRA. As I understand it, you may choose to invest in whatever investment choices are available from the provider, which will often include stocks and bonds mutual funds. This type of plan is very attractive if your family is in a reasonably high tax bracket (>15%) Here is a list of companies that offer ESA accounts with low fees http://www.savingforcollege.com/coverdell_esa_providers/
A 529 account is operated by a state or educational institution. Saving in your state's 529 plan does not limit your child to only using the money for state schools. It can also be used for out-of-state schools. Like the ESA, your contribution is made after tax and the income on the plan grows tax-deferred for federal purposes. Withdrawals are tax free for federal taxes. Withdrawals may or may not be tax-free for state taxes. You retain control of the funds and if your child doesn't go to college, you can get the money back (but will pay taxes and may be subjected to penalties). You can change your investment options and there are VERY high limits to how much you can invest (up to $300,000 in many cases).
You can leave an optional "tip" with Mahalo's virtual currency, Mahalo Dollars. If you are asking a difficult question that might require some research, or if you'd like a wide variety of feedback, a higher tip often leads to more answers to your question.
M$
Savings is the start of course, but with the proper timing, securities, indexes, and closed-end funds, of various types will give you the liquidity, income, safety and growth that you need.
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M$
These options offer meager returns. You can do better when you own something, like a share of the earnings of the fastest growing companies in the fastest growing economies.
"Principles of investing,"
http://www.craigsip.com/research-public/mark-mobius-presents.html