looking for ideas on investing for my kids

jodi · #1 (**permalink**) 01-18-2006, 05:51 PM

I have had plans to set aside money yearly for my boys since the first was born...2.5 years ago! I have the money earmarked for them in my savings account, and I was going to put it into savings bonds, but I am having second thoughts. I want this money to be available to them when they graduate high school, either for college expenses or living expenses if they decide not to go on to college (which is a good possibility given our rural lifestyle and farming family). Therefore, I don't want to tie it up in a college savings plan because I am an not sure what would happen to it if they do not go to college. I was thinking savings bonds would be good (a mix of EE and I bonds). However, I have heard that if the money is in their name, they would be expected to use a higher percentage of it towards college (if they go) than if the money were in our name. Given that my kids will most likely go to college on financial aid and loans, as DH and I did, I want to be able to maximize the aid they will get. So now I am wondering if I should just put the bonds in my name, knowing that I will turn them over to the boys in 18 years??? Any advice/feedback would be appreciated!

sweeps · #2 (**permalink**) 01-18-2006, 06:59 PM

Considering all the unknowns (your kids' future plans, taxes, financial aid, etc.), how about hedging your bets and splitting your money among multiple options?

You could invest some money in EE and I bonds. You could open a taxable account in your name and invest some money in low-cost index funds and/or ETFs. Also, I don't know if I would rule out investing some money in a 529 plan. If one child doesn't go to college, the funds can be transferred to another. Worst case, you have to withdraw the money at a small penalty: taxes + 10% on earnings only (no penalty on contributions).

With this approach, you should have a lot of flexibility 18 years from now.

baselle · #3 (**permalink**) 01-18-2006, 08:10 PM

Quote:

Originally Posted by jodi_m

I have had plans to set aside money yearly for my boys since the first was born...2.5 years ago! I have the money earmarked for them in my savings account, and I was going to put it into savings bonds, but I am having second thoughts. I want this money to be available to them when they graduate high school, either for college expenses or living expenses if they decide not to go on to college (which is a good possibility given our rural lifestyle and farming family). Therefore, I don't want to tie it up in a college savings plan because I am an not sure what would happen to it if they do not go to college. I was thinking savings bonds would be good (a mix of EE and I bonds). However, I have heard that if the money is in their name, they would be expected to use a higher percentage of it towards college (if they go) than if the money were in our name. Given that my kids will most likely go to college on financial aid and loans, as DH and I did, I want to be able to maximize the aid they will get. So now I am wondering if I should just put the bonds in my name, knowing that I will turn them over to the boys in 18 years??? Any advice/feedback would be appreciated!

If you are going the savings bond route and you can take advantage of the fact that if you use the bond for a qualified education expense the interest generated is tax free (whew!), the bonds really should be in your name - the user has to be 24 to take the tax break. And if the bonds are in your name that means you'll probably have to declare them on the FAFSA.

On the other hand, your children should be in a much, much lower tax bracket, so a few bonds in their name won't hurt. Since the bonds are theirs, they can redeem them and spend them however they choose - tuition, pizza, spring break.

You might want to check out a FAFSA form and see what kinds of assets the US gov and colleges are looking for and who they are asking them of. And remember that a lot of legislation can happen between babyhood and college.

Ima saver · #4 (**permalink**) 01-19-2006, 11:35 AM

Your first priority should be setting aside money for your own retirement. You can get a student loan for college, but you can't get a loan for retirement. I would open a no load, low cost index mutual fund with Vanguard or T. Rowe Price.

dealsaver · #5 (**permalink**) 01-19-2006, 12:16 PM

I would reconsider your stance on 529 plans. You can get a 50% return on your money in the form of Target gift cards if you and your spouse open up a couple of these scholarshare 529 accounts each. My spouse and I have made $400 in gift cards over the last two years doing this. There are also a number of youth savings accounts that pay above market rates. Here's a link that has a number of special youth accounts you may be interested in. Of course, here is the best place to start for a small amount of savings - 10% kids savings account

jodi · #6 (**permalink**) 01-19-2006, 05:48 PM

Thanks for the ideas so far. I knew I would get some help here! DH and I both have Roth IRAs already and fully fund them. This money is mostly gift money for the kids that I have tried to set aside, adding a little money from us too. It's not a lot of money - we decided to start each child with $500 and add $100 at each birthday (maybe more later, but our own student loans are much more pressing to us at this time!). Perhaps I should have mentioned the amounts from the start??? Does that make a difference as to which route to go?