Advice for investing in my babys future!!

February 28, 2010 5:34 PM

Advice on investing in my baby's future......

I am trying to figure out the best way to save for my baby's future. Not just money for college, but savings she can access at an age we feel comfortable with, say 25. But I don't want it to effect her chances at getting scholarships or student loans or any other kind of aid in her life if she needs it. Basically a trust fund I guess, that her father and I can invest in monthly and that requires both of us to withdrawal money. When I was a kid I had some kid of savings account started by my grandma but my dad took all the money out and bought hookers or something with it. I want it to be secure but not crazy restricted. For instance the 529 plans that can only be used for schooling and if not you pay penalties, or IRAs that require earned income from the account holder, which I don't understand. Or what about Gerber Grow Up Plan, can you cash in on that at any time? Or a simple money market account? Also where would one go to open such an account. I use a credit union and am not sure if it is smarter to go with a bigger bank or a smaller or what. So please offer me suggestions on the best way to build a little nest egg for my baby!

posted by madmamasmith to work & money (7 answers total)

Just in case this applies to you: Suze Orman says don't invest in kiddo's future unless ALL your consumer and student debt is paid off and your own investment in retirement is secure. Kiddo can take out low interest loans for school. You can't for retirement.
posted by k8t at 6:11 PM on February 28, 2010 [3 favorites]

Have you checked out Upromise.com?
posted by morganannie at 7:32 PM on February 28, 2010

Max out a 529 first - then worry about money with less restrictions. There are few investments with this kind of beneficial tax treatment and high contribution limits. If you have enough money saved for education, then think about something like a money market or other investment. When your child is older you can start to think about IRAs etc. But for the moment take advantage of the ability to have money grow tax free.

If you go the 529 route - look for a plan with very low costs. We liked collegesavingsiowa.com which is managed by vanguard and at the time we started had the lowest costs around. But check around, you may have a plan with more benefits sponsored by your home state...
posted by NoDef at 7:59 PM on February 28, 2010 [1 favorite]

I tried Upromise but found that none of the qualifying purchases were frugal enough to suit me. We could do a lot better by shopping more wisely and investing our savings from doing so.

Savings bonds don't seem to get a lot of respect, but the bonds I purchased through automatic payroll deductions when my son was small are going to pay for a significant part of his college expenses, starting next year. We also have 529 accounts. We were told to be sure that both the bonds and the 529 accounts are in our names, as the parents, not in our kids' names, in order to maximize any financial aid offers.

k8t is right about investing in your own retirement and paying off all of your own debt first. The amount of money in your retirement savings will not be counted against the amount of financial aid your child can get in college, the way other savings will be, and it won't do your kids any good to have college paid for if they then have to support you.
posted by Ery at 6:14 AM on March 1, 2010

We were told to be sure that both the bonds and the 529 accounts are in our names, as the parents, not in our kids' names, in order to maximize any financial aid offers.

Does anyone know if this is true if it's in an "or" status. Say child's name OR parent's name instead of an "And" status on a bond?
posted by stormpooper at 6:36 AM on March 1, 2010

We do a 529 in Iowa and were happiest with the management (I found an older link on AskMe that gave some links comparing different plans.) But if you're going to be in your current state once junior hits college, your own state plan may have some tax advantages.

Although I will have massive student loans once I am done with grad school, we have a 529 to direct the G-parents to every time they want to buy a loud plastic thing. I think that we (the parents) put $150-200/month into it though. Like Ery and NoDef said, 529s are really the way to go.

UPromise is a nice idea, but if you're generally being frugal, it just won't work. So, for example, I NEVER buy kids clothes without a massive discount coupon (www.babycheapskate.com, www.babygoodbuys.com), and we stock up when there are sales.
I guess if you're already shopping for stuff at the retailers that use UPromise, it is OKAY. Make sure that it wouldn't conflict with another 529 though.
posted by k8t at 8:39 AM on March 1, 2010

We are doing a 529, and we can deduct our contributions on our state income taxes. (The rules vary from state to state.) Since you contribute after-tax dollars, you aren't taxed later on the contributions amount, only on the interest income you made by investing it.

If you were to do an investment that used pre-tax dollars, you would be taxed on the whole amount at the time of withdrawl. I am counting on the fact that our tax bracket is lower now than when the munchkin will grow up and go to school; also that income taxes may increase a decade and a half from now. These are the gambles we chose that convinced us we'd rather do a 529 & use the after-tax dollars.

One of our child's grandparents also makes a contribution of $50/month, which he is happy doing to a 529, but he probably wouldn't want to do if it was an IRA in our names.
posted by Knowyournuts at 11:52 AM on March 1, 2010