Saving for college..

**tinapbeana** · 03-14-2007, 08:18 AM

this may be unorthodox, but it's the first thing that popped into my head: perhaps consider a targeted Roth IRA with the target date being, say, 20 years in the future. it'll be more aggressive now and get more conservative as time goes forwards. li'l jill or johnnie can withdraw contributions penalty free if needed, and if not they will almost certainly be set for retirement very early on...

just a thought...

**jIM_Ohio** · 03-14-2007, 08:35 AM

UGMA has pros and cons

once age of majority, the kid has complete control of money. Trip to Europe, new car, college, beer, drugs or whatever.

If you do not like some of the alternatives, keep money in parents name.

A few reasons: hides assets from financial aid calculators (for college). Gives parents flexibility to use money for whatever-college-business plan or other. Parents money, parents decision.

**crabbypatty** · 03-14-2007, 08:59 AM

Originally posted by jIM_Ohio View Post

UGMA has pros and cons

once age of majority, the kid has complete control of money. Trip to Europe, new car, college, beer, drugs or whatever.

If you do not like some of the alternatives, keep money in parents name.

A few reasons: hides assets from financial aid calculators (for college). Gives parents flexibility to use money for whatever-college-business plan or other. Parents money, parents decision.

Wait, doesn't the FAFSA look at parents ability to pay as well. So how does putting the money in parents name as opposed to a child's name hide it from a financial aid calculator?

**jIM_Ohio** · 03-14-2007, 09:05 AM

Originally posted by crabbypatty View Post

Wait, doesn't the FAFSA look at parents ability to pay as well. So how does putting the money in parents name as opposed to a child's name hide it from a financial aid calculator?

YES.

But savings for college will be parter of a much larger net worth of parents. The savings might be 5-10% of the parents net worth.

The FAFSA I believe wants 50% of a child's net worth to pay for school. I think it expects 10% of a parents networth to pay for school.

There was an article I've read which outlined this detail. If parents can get clever to hide net worth, it is to their benefit. Parent should hide this in the spring of their child's sophomore year (so it is NOT on tax return which is filed the spring of their child's JUNIOR year).

**crabbypatty** · 03-14-2007, 09:10 AM

Aha.

IMO, the FAFSA overlooks a lot of important things. It didn't take into account the fact that I was paying 13k a year after tax in daycare costs when I applied for money for grad school.

**jIM_Ohio** · 03-14-2007, 09:12 AM

I'm not suggesting the FAFSA is a bible... it is the tail which wags the "financial aid" dog...

play the game when you need to (sophomore and junior years of child's HS career).

the same way we only play the credit score game when we need to borrow money.

**jodi** · 03-14-2007, 09:18 AM

Originally posted by tinapbeana View Post

this may be unorthodox, but it's the first thing that popped into my head: perhaps consider a targeted Roth IRA with the target date being, say, 20 years in the future. it'll be more aggressive now and get more conservative as time goes forwards. li'l jill or johnnie can withdraw contributions penalty free if needed, and if not they will almost certainly be set for retirement very early on...

just a thought...

Doesn't the child need to have income to contribute to a Roth IRA? I know DH could only contribute as my spouse, not on his own, when he was a student and not earning any income...

**disneysteve** · 03-14-2007, 09:47 AM

Originally posted by tinapbeana View Post

perhaps consider a targeted Roth IRA with the target date being, say, 20 years in the future. it'll be more aggressive now and get more conservative as time goes forwards.

If you mean the child should open a Roth, that is impossible unless the child has earned income.

If you mean the parent should open a Roth and then withdraw the money to pay for college, that would work, but I don't recommend it because it is taking away an important source of retirement savings for the parent. For example, the only tax-sheltered retirement accounts my wife and I have are our Roths. I could withdraw my contributions for college (or anything else for that matter) but then I'd be spending my retirement savings.

**anonymous_saver** · 03-14-2007, 10:07 AM

Originally posted by HiImSeth View Post

My wife and I have been discussing this a lot lately. We're expecting our first child in October and are looking at our options. My questions is this, what would be the best vehicle to save for our child? Obviously we're thinking college but I want the option available for the money to be used for something else. For instance, say they decide college is not for them but they have a sound business plan and would like to begin their own business. So, some of the money may be used for educational expenses in the areas pertaining to the running of their business but they would not be attending a 4year college for a degree and exhausting all of the funds. We'd like the option to have the money saved for college available for them in their initial business investment.. does that make sense?

Anyone have any suggestions on this? Would a simple mutual fund account be best for this type of investment? Maybe an UGMA account?I like the options of money growing tax deferred in some of the other education specific accounts but would not want to be tied down to using the money for strictly education.

Thanks guys, I look forward to your responses. I love this place, always full of great helpful information. =]

I know I may be going in a completely different direction here, but do you and your wife have all of your credit card debt, car loan, other loans (other than a mortgage) paid off already? Do you already save towards retirement - if so, how much? That can help me answer your question more since you probably should be agressively saving for your child's potential to go to college when you have a lot of high interest debt. I'm not saying you have this debt, I just wanted to point this out.

Have you looked into 529's? Just curious.

**Scanner** · 03-14-2007, 10:13 AM

I don't know why anyone hasn't brought up 529's - they are the accepted vehicle for college investing.

**disneysteve** · 03-14-2007, 10:22 AM

Originally posted by HiImSeth View Post

Obviously we're thinking college but I want the option available for the money to be used for something else.

Scanner - I didn't mention a 529 because the OP said this. I agree that a 529 is a great option, and it is the one I use for my DD, but it is not flexible as far as using the money for other purposes. If you withdraw funds for anything but qualified educational expenses, you pay a 10% penalty and taxes on your investment gains.

**boefixepa** · 03-14-2007, 10:31 AM

A Roth IRA would not be a bad idea. It would not be a retirement account, in reality, just a savings earning a tax deffered amount while there. Yes it may effact other savings plans, but it's still a viable option. It keeps the money in the parents names, earns tax free for 20 years, has great leave it and forget it choice out there (the vanguard target amounts come to mind) and if the parents are past retirement when the child goes to college they may even be able to pull it out with fewer taxes and penalties then they would have if they just opened a regular IRA. I have thought this would be the way to go many times as it is pretty much a shoe in that I will be an 'older' parent once my children reach the age I would help with school expenses. Don't be afriad to crunch the numbers on this one. Just realize this money is 'dog eared' for education NOT retirement. Even if it is a retirement type account.

Also, if it turns out the child gets a full sholarship, grants or whatever, the money is already sitting in the account for other things. Personally, I am just going to call this account the 'child' account (in my mind) and it will be for whatever we as a couple decided to do to help our children.

**disneysteve** · 03-14-2007, 10:55 AM

Originally posted by boefixepa View Post

A Roth IRA would not be a bad idea. It would not be a retirement account, in reality, just a savings earning a tax deffered amount while there.

This is true. As long as the parents have other adequate sources of retirement savings, a Roth could be the way to go. Personally, I don't have a 401K and even if I did, the annual contribution limit wouldn't be high enough to meet my retirement needs so I'd need the Roth as well.

**th_tan** · 03-14-2007, 01:36 PM

Originally posted by tinapbeana View Post

this may be unorthodox, but it's the first thing that popped into my head: perhaps consider a targeted Roth IRA with the target date being, say, 20 years in the future. it'll be more aggressive now and get more conservative as time goes forwards. li'l jill or johnnie can withdraw contributions penalty free if needed, and if not they will almost certainly be set for retirement very early on...

just a thought...

This would be great, but I think 21 years will be the most beneficial, as I believe it doubles every 7. None the less, its still a very good idea and well worth it.

Saving for college..