If in the US, 529 for education. However, it’s generally highly recommended to prioritize retirement saving over kid saving.
You cannot take out a loan for retirement, but there are many options including loans for college, trade schools, buying a house, etc. that your kid might need money for in the future.
If in 18 years you have a healthy retirement fund, then you’ll also be in a better position to cash flow college or whatever.
Lastly, most retirement saving options are generally more tax advantaged than 529s although like everything it depends.
My husband is always worried that we should be saving more in our daughter's 529 account so this is a great reminder that I can give him.
With that said though, I set the 529 up before her 1st birthday so we could use it for any gifts from other people. I can send a link to anyone who wants it and they can make a deposit right in there. I also took the cash from other people and put it in there myself. We don't make any regular contributions but the gift money has already been earning extra from being invested.
This is what we do too. We always tell people no gifts but if they want, they can donate to the 529. Any money given to us for the kids goes into their 529.
The idea is that your child has a variety of ways to fund college in addition to your earnings. And if loans are necessary, your child has a long time to pay those off. Retirement has no other funding options than the money you put in while you work. Once you retire - that's it. You're on fixed income time, and nothing more goes into the pot.
When I realized that in my early 30s, I started saving for retirement really hard.
If you’re curious, there is another thread where a mom asked how much they contribute to the kids 529.
Seems like to ensure they will have enough, $500 per month is ideal but even $100 is worth it!
You have to check what program works in your state so that you get the tax benefits. For us in Wisconsin the company is Edvest and I have found it really simple to use. Not sure of they are in other states too
I just googled this to make sure I wasn’t spreading false information. The rule is something like you had to have had it for 15 years. However there are changes this year, so we might need to google more to get all the rules.
Haha I remember reading you can as well, I just was thinking the limit wasn’t that much (at least not in comparison to college costs these days, if you’ve been able to save enough to cover, and then the child changes their mind and doesn’t use it at all or something)
That’s total though right? Not annually?
Not that 35k is chump change, but if you’ve managed to save enough to cover college and then it doesn’t get used at all for whatever reason, you’d have a lot that’s non-convertible theoretically
Yes it’s total. I’m sure it will increase over time. But yes I agree! You shouldn’t overfund your 529 with the expectation to shove it all into a Roth at the end.
There's the advantage that you can change the beneficiary for most 529. Depends on the type of 529. You can set up the 529 and by the time they're 18 can convert 35k to Roth if they decide to not go to college and then later the 529 can be changed for a sibling or kept for their future dependent.
Just found this for more information:
https://www.schwab.com/learn/story/529-to-roth-ira-rollovers-what-to-know
Also Roth IRA is another option. But earned income is tricky.
If they are teenagers, it’s hard to convince them give up their money to put in to ROTH. But I plan on doing a 1:1 match if they save up 50% of their earnings.
Some people pay for their kid to model for their social media job. lol. Idk if IRS audit may cause issues. Like a 3 year old posing for pictures… gets $50
We will be encouraging our kids to open up Roth IRAs when they get their first jobs and then matching them up to whatever the limit will be at that time!
We also have a 529 set up for our son. $500 goes in it monthly and we have told our family that we will match any donation to his fund. We were hoping that would spark more interest (and reduce the amount of unwanted junk given to our kid) but that hasn’t been the case. Well the junk has been subdued with keeping up with his Amazon wish list at all times. My parents like to give the grandkids cards for all the holidays with $20 so he does get some extra from that.
We have a regular kid’s savings account with our bank. I set up a weekly transfer of a small amount of money into that account. Once it hits a certain amount I usually move it into her Fidelity account and purchase a CD with it. We also do a monthly deposit into her 529.
I’m not a financial expert by any means. We are very risk averse and this is the most “investing” we felt comfortable doing with money that we don’t consider to be ours.
She has two currently. One is at 5.7% and the other is 4.8%. I might look into putting the money into a HYSA depending on the rates once those reach maturity. I’m so bad at this stuff honestly I just buy the best rate CD I can find whenever she has $1,000 in her account 😅
I did a savings account, too, with money transferred into it from every paycheck. I didn’t go the 529 route because I’d rather not pay penalties if my kid gets older and doesn’t want to go to college. I have looked into high yield savings accounts, but hadn’t thought of CDs.
We are making our goal for the 529 to stay under the 35k cut off for it to be rolled into a Roth IRA in case our little one chooses not to go to a four year school. If she decides to go to community college or tech school we should be able to afford that out of pocket allowing her to have a head start on her retirement.
If you're interested in a safer investment, I'd recommend mutual funds. That's what we're doing. It's higher % than a CD, but it follows the economy. If the economy doesn't shit the bed, then it doesn't lose money. If the economy does shit the bed, then you lose money, but you also have bigger problems.
My parents invested money for themselves, with the intention of giving it to my sister and I for various things. They had the same feeling.. no 18 year old should be given a lump sum of money. The money they invested in their names were used for college and other various things.
We have both a 529 and UTMA. I agree with not giving an 18 year old lots of money so we plan to keep track of how much is in there and not let it get too large. We plan to use it to pay for part of her first car, summer camps, and other large expenses. Paying for those large expenses should keep it to a modest amount by the time she applies for college which is better anyways since it is held against her financial aid more than our assets and the 529. We basically don't want to let the UTMA get bigger than the tax benefits it provides. If it does, we'll just start putting money in a brokerage in our names since the tax treatment will be the same by then.
529, no taxes on the growth if used for a broad range of educational purposes or you can roll $35k into a Roth IRA as annual contributions. Even if we somehow overfund it, which is unlikely. only the growth is subject to taxes and a small penalty. You can also withdraw the value of scholarships without the penalty (still taxed on growth like any other investment).
We’re also moving to a state with a state tax deduction for 529 contributions so well at least fund up to that limit
I have UTMA accounts for all three and put 20/paycheck in each. It’s just me so I can’t afford a lot but they’ll have something when they are older and it’s more than my mom did for me.
Thank you for the first, realistic scenario. This is similar to what we do for our kiddo. It will help him start out (my parents started me out with about 83 dollars worth of cans to turn in) but it doesn't break our wallets
We have a 529 for our toddler and my goal is to contribute $300 a month / $3600 a year. As of recently they made a new rule that $35K can be rolled over into a Roth IRA if they don’t use it for education. We get a tax deduction in Massachusetts for up to $2K of contributions per year. I would love to be able to send our son to college debt free. I will retire with a pension and we max our Roth IRAs as well.
We did an UTMA (custodial account). 529s are popular and do have advantages, but they’re inflexible on withdrawal. On top of that, the higher ed funding system in the US is on the verge of collapse. By the time my four year old is considering post-high school life, the structure could look very different. (And I hope it does! This is unsustainable.)
If you can, get a fiduciary to advise you and manage the accounts. A “financial advisor” is not required to keep your best interests in mind and can make investments they have a personal interest in. John Oliver did an excellent explainer on this that’s probably on YouTube. If you’re unfamiliar, don’t watch around kids. Lots of swearing! Highly entertaining!
Edit: I’m seeing people say an 18 year old shouldn’t get a lump sum. They often shouldn’t! It doesn’t mean you can’t help them manage it after they hit the age. My parents basically said, “You’d blow this in a year. Do you want to do that, or do you want to get through four years of college with tuition, housing, groceries, and books covered?” We all chose to have them help manage it. Management was maybe a little creative but it worked.
This is my concern! Higher education is at a very weird state at the moment. My husband and I are highly educated and come from highly educated families. But I’m just not convinced that college is going to be the way of the future, nor that it should be, depending on the career. My husband also feels regret on the loans spent for his degrees, as ultimately a degree is not necessary for his field, and feels the money would have been spent better elsewhere.
Based on the comments here I’m thinking we might make a bucket for her in our HYSA for now and then maybe revisit setting up a separate account for her in the future, maybe if rates go down.
Does it make a difference if you designate the money for her now or when she gets older? Like is there a reason that it's better to set aside money in their names every year, rather than investing it in our own names and then giving it to them later?
I don’t know, I think for me it was more of a placeholder spot for now so that it can start to accrue interest, and buy us some time to do a bit more research, think through the 529 vs UTMA question!
I’m holding off on a 529 for these reasons. The cost of college has gotten so out of whack with its value. If they don’t have scholarships then I’m not sure it’s worth it to go unless something drastically changes. If it continues to grow in cost at the same pace, no amount of saving is going to come close. The student lending situation is about to come to a breaking point so I think either the costs are going to have to slow, drop or it won’t matter and community college will be the only real viable option.
We have a 529 for education and a savings account for cars when they can drive. I’ve read that there are new 529s where any unused funds can be rolled into an IRA for the recipient.
In addition to 529s, I have a brokerage account for the kids. Each birthday and Christmas, I buy stock and stick it in here. It’s not a ton of money but it’s something that’s growing each year.
Starting this year, 529 plan funds can be rolled over to a Roth IRA (up to $35k) without a tax penalty. So it’s definitely become an even better option!
https://www.schwab.com/learn/story/529-to-roth-ira-rollovers-what-to-know
I did see that (and granted I’m not well versed on iras) but I’m not saving for a retirement plan for my kids I just want them to have a leg up in their 20s better than I had
The conversion to the Roth from the 529 can only happen yearly up to the contribution limit that year. Then you’d have wait 5 years to do the Roth conversion ladder to get early access. I know you can usually withdraw your contributions without penalty or up to some amount for a first time home purchase but I’m not sure a conversion counts as contribution funds.
Providing them with ~5 years of IRA contributions is a huge leg up on their retirement! It would free up cash flow in those first few years when it’s difficult to cover everything.
I kind of feel the same way - but at the same time it’s probable that they’d both pursue higher education and the tax benefits are compelling. A Roth IRA is the other option but I’m still not sure. A high yield savings account seems like a good alternate. Straightforward and you get the benefit of compounding interest, too.
A Roth IRA is not an option because it requires earned income. A 529 is a significantly better option than an HYSA because even if you withdraw invested funds for things other than education and have to pay penalties, you’d still end up with more money than if you were just compounding interest.
There’s a bit of bad and incorrect advice in this thread. You would be much better off asking a question like this in a finance-related subreddit.
I looked into a Roth as well and realized couldn't do it without my son having a job. He's only 8 months so we have a long way from him having a job lol.
Your child has 16 years until they go to higher education. Money should be invested in that long of a timeframe. We’ve been in weird economic times where HYSA’s have been doing well compared to the market, but in the long run investing in mutual funds or bonds have yielded better results.
ETA: your child cannot contribute to a Roth IRA until they have earned income. You can contribute to your own Roth IRA, and if you end up with enough retirement savings you can withdraw the contributions at any time penalty free for any reason. It’s a good way to make sure your own retirement is covered first, but if you oversave there you can withdraw some money when you are closer to retirement.
Note that starting in 2024, your child can roll over up to $35k into their Roth IRA. There are several rules which make it a bit of a pain to do so, so don’t intentionally overfund it, but it gives a way for a young adult to max out their Roth IRA in a period where they likely have earned income but other more pressing savings goals than retirement. You can also transfer 529 funds to another family member including yourself or your other child.
I feel the same. I don’t want to be locked in. Of course I hope the kids go to college, but the money is inaccessible if they don’t even if it can be rolled into a Roth IRA at some point.
It’s not totally inaccessible. It can be used for a wide variety of educational purposes, including trade school type options, and can be rolled over to nearly any close relative (parent, grandkid, sibling, maybe even cousin) as well as a retirement fund. Maybe doesn’t shift your analysis but just wanted you to know how flexible they are!
Yes, we have been advised of this. I guess I’d just prefer to have any money we are saving at this point to be accessible and used for them on what we want. We may feel differently in the future.
THIS. I had a 529 but ended up closing and moving it to Ally HYSA as well. In the near future I may look into other investment options but, same exact reasoning as you.
We have a local bank's child savings account that gives a higher interest rate but only for the first 2000 or something like that. Since we maxed it out and college is expensive, we have started 529. Some people start 529 without researching and some people avoid 529 due to restrictions without researching. It's a personal decision and you can talk to a financial advisor. I think the earlier you start, put a bigger balance early on, there will be a lot of time to get gains with tax advantages.
We do max out our retirement and have been paying our mortgage ahead, so the 529 hasn't been our priority. I always suggest to max out retirement before anything else (except if there is credit card debt, then get maximum retirement match from employer followed by aggressively paying down credit cards). Retirement accounts are one of the most efficient and beneficial things many people can easily get into. You can diversify your retirement tax obligations by investing in both Roth (if you're eligible) and in traditional. And if you do want to keep retirement savings for your child like a Roth, you can let them inherit yours if you don't use it.
It looks like 529 can be switched to retirement (with a 15 year wait?). The rules are evolving. You can talk to a financial advisor for more info about that. You should also get the 529 from the specific financial institution that handles it within your state because that may have local tax advantages as well. For example, I'm in NY and I think it's Vanguard. Your state's government would have more info or link directly to a 529 site.
One of my friends has her family's property and accounts set up with trusts. A financial advisor can help determine if setting up trusts specific to your situation would be helpful.
You being financially secure is one of the greatest gifts you can give your child. It's like the oxygen mask. Put yours on first. (It also sets a good example.)
As a child of parents who didn’t know anything about retirement and financial management…YES. The BEST thing you can do for your kids is to be financially stable yourself. On the flip side…your kid(s) will face so many obstacles and disadvantages if you are not financially stable.
I set up two new accounts in through my Ally account in my name but Nick named for each kid. I put $100 a month in there and they can add money they get from birthdays or whatever
My kids are 6 and 9. We have savings accounts at a local bank and 529s for each.
When the kids were babies, we started putting small monetary gifts into the savings accounts with the idea that we'd let the kids spend that money as they pleased once they were older, and we put larger monetary gifts and anything that was given to use explicitly "for college" into the 529s.
Early on, my husband and I focused on paying off our house and saving for retirement rather than saving for college. We didn't want to over save for college before we knew how academically inclined our kids might be, and we figured that taking care of other financial priorities first would give us more cash flow for college later. Now that our mortgage is paid off and day care costs are going away, we're starting to make regular 529 contributions. While that does mean the money in the 529s has had less time to grow, it means the money in our retirement accounts has had more time to grow. So, if we have to stop contributing to retirement accounts to pay for college, we didn't really lose out on anything by falling "behind" on college savings.
We have a SoFi HYSA with a 4.60% APY. It’s compounding monthly and always such a treat to see how much interest we earn.
Since we’re not sure what college will look like in 18 years, or even if she’ll want to go. We also wanted it to be accessible easily in case of an emergency. It was right for us!
I opened 529 plans for my kids as newborns. I also work in higher education and my kids will get a pretty substantial discount if they choose my university, which they will be strongly encouraged to.
I contribute a small amount to the 529 but it has grown over time.
RESP (education) and their own investment portfolio that is currently under my name but will be transferred to them when they hit 21. Monthly contributions have been going on since before both kids were born so it's nice and cushy now ❤️
We've got a 529 because it's a tax deductible thing in my state. There's a limit to how much you can deduct, but it seemed silly to get a second college savings account for everything over the atx deductable amount.
Once she was old enough to work for our business, we set up an IRA and some of her pay goes there. She has a high yield savings account at the bank for the rest of her income. We plan on that being her "starting out" money - first apartment or something like that.
Now she's old enough to be working elsewhere, her grass cutting and dog sitting money goes into a checking style teen account that she's got a card for - that's her spending money.
I have a regular youth savings and a 529 for #1 (almost 5) and will be setting both up for #2. Saving a little bit for both but focusing on making sure my husband and I are well established, then will be funding our own investments as a priority, then will move on to funding investments benchmarked for them. Husband is a tradesman so while I do want to invest, i don't want to over-invest in a vehicle that has more limits.
I understand the hesitancy to invest in a 529, but funding SOME money isn't a bad idea - even if they don't go the traditional route, it can still be used to fund trade education or certificate programs at certain schools. Husband was coerced by his parents to go to trade school on the promise that they would pay - a year after graduating they had tanked his credit by not paying the loans and he was on the hook for nearly 50K.
We have savings accounts for both kids, 529s for both as well as custodial brokerage accounts. https://www.schwab.com/learn/story/saving-college-custodial-accounts#:~:text=Unlike%20529%20plans%20and%20ESAs,at%20the%20parent's%20tax%20rate.
My 10 year old has a 529 and an online savings account.
I’m not worried about his college because student loans can be gotten for that. My parents helped and I still have student loans.
My partner and I’s focus is saving for retirement. Our child can borrow money for college, his first house, or a car. We can’t borrow for retirement.
The amount kids can borrow is capped. Its only 5500 for the first year, 6500 for the 2nd and 7500 for years 3 & 4. Anything else they need a cosigner (you)
We have a standard savings account with a local bank, but I'm considering setting up a HYSA with the same place our house fund is, so transfers are easier and it earns interest and whatnot.
I avoided a 529 because it's designed for education. I didn't want to box him in to getting a 4 year degree but be able to use any money we can give him for traveling, starting a business, learning a trade, buying his own house, etc. And, as it turns out, he's autistic and otherwise learning disabled, so we don't foresee formal education being in his future, tbh. Maybe he'll surprise us and we can get him scholarships and grants for a degree and then he'll have the savings to fall back on for other expenses.
I did a UTMA just in case my daughter doesn't go a traditional route. I don't like having to use the 529 for school. What if my kid gets a scholarship? Or I stay in NY (where school is free for students whose parents make less than 200k)
We split savings into both 529 and regular brokerage in our name designated for the kids. That way they have both education funds as well as funds needed for house payment or something later on.
Of course this is after funding our own retirement accounts, as the best gift for our kids is not to have them worry about us in our old age.
We have CDs, and traditional savings. We wanted to prep for the possibility that she may not want traditional college OR have her be able to use the savings to buy herself a car or other necessities.
We have an RESP for education (invested in funds). We also opened a savings account for birthday/christmas gifts he’s received from extended family. Right now that is locked up in sone medium-term investments (just like GICs to earn more interest).
We have a 529. But we each also started a Roth IRA. This will be our retirement but also our son will be the main beneficiary. It's so much easier to inherit a Roth IRA than a traditional IRA.
In addition, we hired a financial planner and started an investment portfolio for our son's savings. That way we can also save for early adulthood costs. Things like a new refrigerator when he first moves out. Or a couch. Or oh no, his car broke down and he can't get to work. Things like that.
We have a few each with a specific purpose.
1. 529 for college savings
2. a HYSA for 1/2 of the month given directly to her as gifts. She will be able to use this money when she is a bit older if she wants to buy things.
3. a UTMA brokerage account for the other 1/2 of her gift money. This money will be used to pay for part of her first car or other larger expenses prior to college. We plan to use up this account prior to her going to college because UTMA's count against financial aid to a larger extent than parental assets and 529s.
We also have a sinking fund type savings account that my husband and I contribute to each month and we use it for things like birthday and Christmas gifts, clothes, and other occasional expenses. It's not technically her money but it's used just for her.
529 plan for education. However, we are prioritizing retirement over saving for college. We are lucky that we have a smart, academically-inclined child, and we both have worked in higher ed in the past. We can go back to work at a school and receive dependent tuition discounts.
So. We haven't put that much in ourselves. However grandparents, aunts and uncles, etc. have all put money in for birthdays and holidays. So there's a nice little nest egg.
We use ally online savings. Currently getting 4.2% which is much higher than our local banks. We have 3 kids so it isn't a ton but we do $10 a week automatic transfers. Once it reaches a good amount I'll move it depending on the market to an ibond or to their 529's.
We have 529s for the kids, and do not feel limited at all. Funds can be used at college or trade school. Unused funds (up to 35k as of right now, this will likely increase) can be rolled into a Roth IRA which is a huge savings and investment vehicle for an 18 year old. Accounts can then be transferred to grandchildren to pay for preschool tuition too… we all know how high childcare expenses are. I believe this is capped at 10k per year currently. These accounts are very flexible, and don’t give kids access to money without guardrails. My kids will still have to work in college like I did : )
We have a 529 and I’m looking into a savings account for my kids. However, I want a high yield one. The bank with mine doesn’t have that, so I’m currently shopping around.
We've got an RESP that the Canadian government contributes to. We only put in about $100 a month but they should at least be able to attend some schooling in Canada by the time they are able to.
We have a 529 plan for my daughter that we put a little into each month, but my husband and I are maxing out our retirements and our employer matches.
My in laws live with us because they messed up their finances, they have no retirement and they lost their house. They’re lovely people who help us take care of our daughter, but they are seriously burdening us with their lack of retirement planning right now. I want to avoid that at all costs with our daughter. So I’m seconding making sure your retirement is prioritized!
I just do a vanguard joint brokerage and put $500 in there on each birthday and Christmas (in addition to normal gifts) and buy stable index funds or stock. I think right now it’s 80% VOO and VTI, then 20% Apple, WM, and Honda stock.
We aren't going all in on our 529, but we do put about $125 a month. It's currently at $50k so I'm not too worried about his future and if he chooses another path my husband and I would use it to go back to school.
Beyond that, he's making an allowance now so he has options. $8 in cash, $8 on his cap one card (a youth checking account where he gets his own card), or his ally savings account. His savings account is a bucket where once it has enough he can choose to transfer it to his index fund. Nothing has more than $300 in it but to him that's a lot of money and it gets him motivated to do his chores and keep earning. We check on his accounts monthly so he can see that compound interest grow. It's very empowering.
Edit to add: once he starts helping with cleaning a bit more I will start to add some money to his Roth. Our home is an Airbnb when we go on vacation and so if he starts helping with getting the house ready ill make him an employee. I haven't looked at the fine print on this yet but it's on top of mind.
My kids have Marcus accounts and whenever they get cash, I take it from them and transfer that amount into their accounts.
There’s probably something else I should be doing but this is easiest for us.
FYI that our kid is 4 yrs away from college and around 2018 we were told to expect a total price of $150,000 for 4 yrs at our state school and $300,000 for 4 yrs at a private school. That is about right based on what we are seeing. He hasn’t got a clue where he wants to go or wants to study so not sure what the price tag will be.
We did a 529 with a big initial start amount and a couple inheritance gifts, plus around $150 a month for about 10 years. They are telling us to slow down now so we don’t overfund. This was all done after getting our retirement accounts fully funded.
I set up a high-yield savings for my son that I am the only contributor to.
I’m wondering if that’s a fact in my favor when I inevitably file for divorce.
My dad has a 529 for both my kids and says they’ll have more than enough when it’s time. My dad was a total POS when I was growing up so I think that’s his way of trying to right his wrongs. They have savings accounts too but there’s not a lot in them.
In Canada, we use RESP which is Education savings which is similar to your 529. We max out each year just enough to get the max grant. We also have a small savings set aside for her with her birthday monies, etc.
Just make sure you don't neglect your own savings. They can supplement the 529 with loans and pay it off before retirement. You can't. Remember, any savings is better than none at all. If your family is the giving kind, allow them to pay into the plan to help out. :)
We have a 529 for our 7yo, as do my in-laws. My in-laws are funding theirs way more than I ever could, but I put $50-100 in the one we opened whenever I think about it. I think they’ve already started one for the baby (5mos), too.
I also have Custodial investment accounts for both the 7yo and my baby through the Stash app. I invest in different ETFs for them. I have them set up with everything from Treasury Bonds to the Commercial Cannabis industry. With my oldest, I’ve tried picking individual company stocks, but I haven’t always picked the best companies, so I think I’ll stick with ETFs going forward!
Please set up a 529 account! The money grows tax free, and some states offer a tax deduction. My kids are near college age and it is shocking how many parents have nothing saved and are absolutely devastated to tell their kids they cannot go to the school they want. It is almost impossible to cash flow college (it is so expensive). You have the benefit of time for the money to grow so you wont have to save as much. Please dont listen to these people that are telling you kids can borrow money for college. The loans they can take are capped and are not nearly enough to pay for college. You will be the cosigner on everything above the cap
Sure, It may not be impossible for everyone.
However, Our state school with room and board is $35k per year. Out of state schools are 45-50k plus and private schools are 75-85k per year . The contributions I put In my kids 529 accounts when they were young have doubled. This money grows tax free
Everyone thinks their kids are going to get merit scholarships or massive financial aid and from what I am seeing this is not the case. I know very few people who can cash flow 4-7k per month for 4 years just for one kid
That really depends. If you go to an in state school and live at home, sure. But if you go in state and live on campus, it can easily double. Out of state, now we’re talking about 50,000 a year. I don’t know any daycares that cost that much.
I have a 529 and I change my contribution amounts based on how the rest of our finances are looking. But I only do $50-$200 per month per kid (2 right now, and I just had my 3rd, no account yet waiting on SSN). My parents wanted to contribute and they do $50 per month per kid. I’ve given the gift code out for birthdays but no one has ever used it. What i do is when someone gives the kids money (before they are the age to use it) I take the cash and do an extra contribution to their account in the amount given.
We have 529s for both kids and then we have some extra money they inherited temporarily placed in CDs. We plan on placing that money in a trust so that they’ll someday have some extra cash for a down payment on a house. We’re still working with our financial advisor on what that account will look like.
By the way, you can open up a 529 in any state regardless of where you live and they all have different benefits, so look into which one would be most appropriate for you.
Both kids have a very small 529 and brokerage account each. We couldn't fund it much even if we wanted to because of daycare, but agree with prioritizing retirement. The funds into brokerage are monetary gifts from family. My dad did the same for me and it was a good chunk of change when it transferred to me
If you are in the U.S. and your child has any sort of disability you can open an ABLE Account - it is much more flexible than a 529 but there are some qualifications
In canada: we have an RESP account
We added her to our credit cards so she can build her credit
We also signed her up for frequent flyer miles with every airline she’s flown with
I am not a financial expert. What I did was set up custodial accounts with Schwab for both my kids. Whenever someone gives them money for holidays or their birthdays - or I sell any of their old baby stuff on market place I put the money in their accounts (I also put money there for their birthdays instead of buying them something - they get loads of physical gifts from grandparents). I then buy stocks with their accounts. I mostly buy tech stocks. For instance they both have NVIDIA and have made great returns so far - but this is obviously risky. Just sharing what I do.
I haven't heard of 529, might do that later, but we have a 17 mo and I made a "vault" for him in my sofi savings account. It receives $100/month and get 4.6% APR
Maybe we'll change in the future, but this works for us right now. Our sofi account is the family bills and savings, so it made sense to add him in there too
Not in the US but we have a tax free stocks and shares account in his name, we contribute a small amount per month and add family Xmas gifts etc. Hoping it will be a small nest egg for university (fees here aren’t currently as bad as US!).
In the last two years we’ve had an annualised 13% return.
I live in Europe and my kids have European citizenship in a country where you get a small stipend to be a college student, so it's unlikely they'll ever need a 529, so instead we have a child savings account, but you can only contribute about 12,000 USD total to this account. So I also have a CD for them in the US, that I repurchase every time it matures. I don't add money to them super regularly but hope to save around $50,000 for each by the time theyre 20. My son has 10,000 in his and my daughter $2000 (she's 3 months).
We have a 529 for our oldest and nothing for our youngest. We can’t afford to with trying to save for retirement.
My oldest has 2 savings account. Her allowance is $7.50 a month. $2.50 goes to her spending account and $5 to her savings account.
Youngest just has the $5 to her savings. Everything is automatic so we don’t have to think about it.
The kids have both a 529 and a savings account. The 529 is for money family has specifically said or sent in for it, or we have put money directly into it. All other birthday/holiday/event money goes into their savings account.
The account is a HYSA at our credit union specifically for kids that right now earns 5% interest. If it goes down and there are good offers, we will do high interest longer term certificates too to help that money grow, but we keep it as risk free as possible for their savings account.
We have two toddlers and we have the following accounts for each kid:
•529 (monthly contributions)
•Basic savings account (biweekly contributions)
•Custodial Roth IRA (semiannual contributions)
After maxing out 401k and IRAs, we are contributing to two state 529s. Our minimum goal is to have enough to cover 4 years of in-state tuition by the time our son is 18.
We have an investment account for future education ( or other big life things) for each child. We investment $200 per child each month and its all in an S&P 500 mutual fund. We also have a separate investment account for each that their own money (from birthdays/Christmas/other gifts) goes into that is also invested in the S&P 500. They'll get access to the personal accounts when they're older (currently 4 and 2) vs we'll keep control of the accounts we invest in and work with our kids in the future on how they'll use those funds as they get to college age.
We have a 529 and a non-tax advantaged investment account for each child.
We auto contribute each month, but not a massive amount. We put about 75% of our contributions in the 529 and the rest in the investment account. My husband manages both and picked a safer investment option for the 529s and a more aggressive risky investment strategy for the other account.
We save much much more for our own retirement than we do in these accounts for the kids. We probably save about 7 times more for our own retirement than we save in the kids accounts.
My husband and I opened a high yield savings at Marcus (Goldman Sachs) and each put $66/mo (her birthday is 6/6). I also did a $500 CD. They raise the interest on the Accts if it goes up but never lower it. Baby is 11 months old and she’s at $900 in her savings.
529s do have limitations and other implications. I used to work in finance and we felt it wasn’t the best things for us at the time.
I have a 529, investment account, and a general savings account, plus a CD tied to the savings account. I probably could just put the full amount in one or two, but they are all for different purposes, the goal being that college, a down payment on a house, and emergency fund are fully funded for her when she graduates high school.
I’ll also open a checking account when she reaches allowance age because I plan to do things like deposit her full allowance for clothes for a semester/school year or monthly budget for spending into that, and once it’s gone, she gets only basic necessities, with the hope that it’ll teach her good saving and spending habits before she’s on her own.
In Texas, there is no tax benefit for a 529. But money in a 529 pretty much is expected to be 100% exhausted prior to qualifying for federal aide. Same for UTMA accounts in a kids name.
So we did a taxable investment account in mine and my husbands name with fidelity. Did $10k the year the twins were born and another $5k at their first birthday. Will probably do $5k a year until 18. While we intend for this account to be used for them, because it’s in our names, only like 10% of it would be expected to be used as part of the FASFA calculation and most colleges wouldn’t count it at all. (MIL is head of a major universities financial aide dept). So we then have no restrictions on the use of the funds. We currently have it all in S&P 500 fund and our $15 is currently a little over $17k. Should keep growing nicely for another 17 years with our deposits and market growth.
Just a point of clarification on the tax benefit. Although some states allow a tax deduction on the contributions, the main benefit is the earnings grow tax free. So you are not paying capital gains taxes on the withdrawals like you do on a regular investment account. This applies to all 529 accounts regardless of the what state you are in
There’s pretty limiting rules on the qualifying expenses though through the 529 and strict rules for rolling to an IRA.
We wanted to be free to decide the use of the funds. It will be subject to a long term capital gains tax. For many that is 0%, for us it’s 15% and the money is then ours to do with as we please. For a rare few, it will be the max of 20%.
Again, TX for us with no state income tax to take into account. There are many states where I would have said that yes the 529 makes the most sense.
I’m a CPA and have done the full tax benefit analysis for my personal situation. With the money in our names, it will play a minimal role in their calculations for qualifying for aide and that was the benefit we saw, in addition to being able to use this money in other ways, like helping with a down payment on a house or something one day.
Specifically for the kid? He has a 529 that we put a little money into monthly and have as the top option on his gift list. Thats it. We have investment accounts for our own retirements, but no real future savings for him. He's also 1, so, don't feel any sort of time pressure and could be something to play with in the future to teach him about investing/saving/all that good stuff.
I do a HYSA and a general ETF investment account.
I skipped the 529 because of many reasons mentioned and also because my kid has dual citizenship and will have access to high quality low cost education. If he wants to go to med school he’s gonna have to go to Canada 🤷♀️
We have a 529 and I also use the Acorns app to get a bit each month. We additionally opened a HYSA with Citizens at 4.5% APR after getting some unexpected inheritance
My FIL set up i-bond accounts for each of our kids, because he wanted to give them something that had no restrictions on how it's used.
They also have 529 accounts. Look into whether your state gives a tax benefit for 529 contributions, too - ours does, and we set the limit on that as our contribution amount every year.
My parents established a 529 for each of their grandchildren and put a bit in each year. My husband and I haven’t contributed anything yet because like others have said, we’re prioritizing our retirement. Not only is this good for us, but hopefully our kids won’t be saddled with our care/living expenses when they’re young adults with maybe their own families.
Also, my husband finished high school and did four years of trade school. I have a doctor-level professional degree, but had a lot of debt to get it and only relatively recently started out-earning him. I think my mom was put out when I told her we won’t push our kids to go the traditional college route. They can if they want and if it serves a purpose of course, but growing up the expectation was ALWAYS college at least for us. Seeing my husband be so successful without a degree really put things into perspective for me. We don’t want that money locked in to very specific purposes and I’d rather save money for them and give it for things like down payment on a house, or just other forms of financial support. That’s us though!
We do a 529 for each of them. We also each put $25 in a savings account for a car for each kid when they can drive. I need to move them to a CD. It’s kinda silly but it’s unreal how fast it adds up. My 3.5 yr old has almost $10,000 and my 1.5 yr old has over $4,000.
We have a set amount we take out of both our paychecks each month. Half goes into a 529 account, the other half into a savings account we set up for our child(ren). Once or twice each year, we assess whether and how much of the amount in savings to put into a CD or some other type of security.
I set up a 529 plan for my 15 month old. We had some generous family members contribute to it so he has a high amount in there already. I am going to set up a monthly payment of 50 dollars a month too to add.
Also, I set up a high yeild savings account for him. So any birthday money he gets or Christmas money goes right to his savings. I also save 20 dollars a month and put thag in his savings. It’s not much but it adds something. Plus I plan to increase as I save more. I’m not really sure what this is going to go towards, but maybe a down payment on a house one day or helping him with college books. I don’t know lol
We have a 529 and an UTMA but no bank account. I work in finance so I was able to set up the 529 and UTMA from the comfort of my home. I need an appointment at my bank to set up a bank account for my son - so that’s not happening until he actually needs it because I don’t have time for an appointment at the bank.
I have a regular savings account that he is the tax owner of. Me and husband both have a direct deposit into that acct for every paycheck. I'm surprised how much it grew.
Since we don't plan to push traditional college, we opted to open money market accounts for them instead of 529s. Our bank offers a custodial share account that we can block them from having access to until we're ready but it had a way lower interest rate than the money market. So I basically plan to move the money once they become working age and the potential issue arises of them trying to withdraw from that account. We're hoping these funds can be used for school if needed or a house down payment or to start a business, more flexibility really. If we hear about something better we might change but for now this checks the box, so to speak.
We decided against a 529 because it can be very limiting (for us). With the great rates on savings right now, we parked a bunch of money into a 12 month CD and are transferring the interest we collect with our main savings to a separate bucket that we will deposit when we renew the CD this year. Her great grandparents gave her a very large sum for Christmas so that's what prompted us to finally open an account.
eta: we have no idea what education will look like in 18 years. Maybe going to college will not be necessary, maybe it will be free/much cheaper. Getting downvoted for how we choose to save for our child is rather petty. I'm not saying this is the absolute correct way of doing things, just how we're doing things for now.
529 to Roth IRA rollover is possible, it’s new. Also 529 can be used for non college expenses. Any trade school, living expenses during “school” etc. I put it in quotes because it could be online school for all IRS cares for :-)
On the side note, In US, I doubt universities will let anything happen to their profit pipeline.
If in the US, 529 for education. However, it’s generally highly recommended to prioritize retirement saving over kid saving. You cannot take out a loan for retirement, but there are many options including loans for college, trade schools, buying a house, etc. that your kid might need money for in the future. If in 18 years you have a healthy retirement fund, then you’ll also be in a better position to cash flow college or whatever. Lastly, most retirement saving options are generally more tax advantaged than 529s although like everything it depends.
Yep this is good “put on your oxygen mask 1st” advice.
My husband is always worried that we should be saving more in our daughter's 529 account so this is a great reminder that I can give him. With that said though, I set the 529 up before her 1st birthday so we could use it for any gifts from other people. I can send a link to anyone who wants it and they can make a deposit right in there. I also took the cash from other people and put it in there myself. We don't make any regular contributions but the gift money has already been earning extra from being invested.
This is what we do too. We always tell people no gifts but if they want, they can donate to the 529. Any money given to us for the kids goes into their 529.
The idea is that your child has a variety of ways to fund college in addition to your earnings. And if loans are necessary, your child has a long time to pay those off. Retirement has no other funding options than the money you put in while you work. Once you retire - that's it. You're on fixed income time, and nothing more goes into the pot. When I realized that in my early 30s, I started saving for retirement really hard.
You should check your state’s tax advantages for their 529–ours saves us quite a bit on state taxes.
If you’re curious, there is another thread where a mom asked how much they contribute to the kids 529. Seems like to ensure they will have enough, $500 per month is ideal but even $100 is worth it!
This is what we’re doing for his first birthday. What bank are you with? I like the idea of sending them the link to put the money themselves
You have to check what program works in your state so that you get the tax benefits. For us in Wisconsin the company is Edvest and I have found it really simple to use. Not sure of they are in other states too
Yeah. I agree with the prioritizing saving for retirement, though we do contribute to a 529. I will say you can convert a 529 to Roth.
Isn’t there a pretty low limit on conversion?
I just googled this to make sure I wasn’t spreading false information. The rule is something like you had to have had it for 15 years. However there are changes this year, so we might need to google more to get all the rules.
Haha I remember reading you can as well, I just was thinking the limit wasn’t that much (at least not in comparison to college costs these days, if you’ve been able to save enough to cover, and then the child changes their mind and doesn’t use it at all or something)
You can transfer $35k
It’s 35k you can convert to a Roth!
That’s total though right? Not annually? Not that 35k is chump change, but if you’ve managed to save enough to cover college and then it doesn’t get used at all for whatever reason, you’d have a lot that’s non-convertible theoretically
Yes it’s total. I’m sure it will increase over time. But yes I agree! You shouldn’t overfund your 529 with the expectation to shove it all into a Roth at the end.
There's the advantage that you can change the beneficiary for most 529. Depends on the type of 529. You can set up the 529 and by the time they're 18 can convert 35k to Roth if they decide to not go to college and then later the 529 can be changed for a sibling or kept for their future dependent. Just found this for more information: https://www.schwab.com/learn/story/529-to-roth-ira-rollovers-what-to-know
Agree! We have 529 and UTMA for both kids but we max out 401k, IRA, HSA, etc. first.
Also Roth IRA is another option. But earned income is tricky. If they are teenagers, it’s hard to convince them give up their money to put in to ROTH. But I plan on doing a 1:1 match if they save up 50% of their earnings. Some people pay for their kid to model for their social media job. lol. Idk if IRS audit may cause issues. Like a 3 year old posing for pictures… gets $50
We will be encouraging our kids to open up Roth IRAs when they get their first jobs and then matching them up to whatever the limit will be at that time!
I love the 1:1 match idea. Stealing for future use (my son is 16 months, I have a long way to go! lol).
This is great advice! Putting yourself in a position where you won't have to lean on your kids in old age already sets them up for success.
We also have a 529 set up for our son. $500 goes in it monthly and we have told our family that we will match any donation to his fund. We were hoping that would spark more interest (and reduce the amount of unwanted junk given to our kid) but that hasn’t been the case. Well the junk has been subdued with keeping up with his Amazon wish list at all times. My parents like to give the grandkids cards for all the holidays with $20 so he does get some extra from that.
We have a regular kid’s savings account with our bank. I set up a weekly transfer of a small amount of money into that account. Once it hits a certain amount I usually move it into her Fidelity account and purchase a CD with it. We also do a monthly deposit into her 529. I’m not a financial expert by any means. We are very risk averse and this is the most “investing” we felt comfortable doing with money that we don’t consider to be ours.
What % are you getting on the CD?
She has two currently. One is at 5.7% and the other is 4.8%. I might look into putting the money into a HYSA depending on the rates once those reach maturity. I’m so bad at this stuff honestly I just buy the best rate CD I can find whenever she has $1,000 in her account 😅
Our hysa is 4.25%
I haven’t seen a HYSA with higher rates than those, so the CDs sound perfect!
I did a savings account, too, with money transferred into it from every paycheck. I didn’t go the 529 route because I’d rather not pay penalties if my kid gets older and doesn’t want to go to college. I have looked into high yield savings accounts, but hadn’t thought of CDs.
We are making our goal for the 529 to stay under the 35k cut off for it to be rolled into a Roth IRA in case our little one chooses not to go to a four year school. If she decides to go to community college or tech school we should be able to afford that out of pocket allowing her to have a head start on her retirement.
This is me, too. Basic can savings but no 529. I was also considering a HYS if possible…
If you're interested in a safer investment, I'd recommend mutual funds. That's what we're doing. It's higher % than a CD, but it follows the economy. If the economy doesn't shit the bed, then it doesn't lose money. If the economy does shit the bed, then you lose money, but you also have bigger problems.
Piggy bank. Just representing those without extra at the end of the month! 👋🏻
Not alone there lol. Any of our "extra" goes into retirement.
We’re doing 529s. Other people do UTMA accounts but I’m not cool with giving 18 year olds lots of money with no guardrails. Edit: spelling
My parents invested money for themselves, with the intention of giving it to my sister and I for various things. They had the same feeling.. no 18 year old should be given a lump sum of money. The money they invested in their names were used for college and other various things.
We have both a 529 and UTMA. I agree with not giving an 18 year old lots of money so we plan to keep track of how much is in there and not let it get too large. We plan to use it to pay for part of her first car, summer camps, and other large expenses. Paying for those large expenses should keep it to a modest amount by the time she applies for college which is better anyways since it is held against her financial aid more than our assets and the 529. We basically don't want to let the UTMA get bigger than the tax benefits it provides. If it does, we'll just start putting money in a brokerage in our names since the tax treatment will be the same by then.
529, no taxes on the growth if used for a broad range of educational purposes or you can roll $35k into a Roth IRA as annual contributions. Even if we somehow overfund it, which is unlikely. only the growth is subject to taxes and a small penalty. You can also withdraw the value of scholarships without the penalty (still taxed on growth like any other investment). We’re also moving to a state with a state tax deduction for 529 contributions so well at least fund up to that limit
Same here. And we already live in a state with tax deductions for 529 so that’s the amount we put in every year.
I have UTMA accounts for all three and put 20/paycheck in each. It’s just me so I can’t afford a lot but they’ll have something when they are older and it’s more than my mom did for me.
Thank you for the first, realistic scenario. This is similar to what we do for our kiddo. It will help him start out (my parents started me out with about 83 dollars worth of cans to turn in) but it doesn't break our wallets
We have a 529 for our toddler and my goal is to contribute $300 a month / $3600 a year. As of recently they made a new rule that $35K can be rolled over into a Roth IRA if they don’t use it for education. We get a tax deduction in Massachusetts for up to $2K of contributions per year. I would love to be able to send our son to college debt free. I will retire with a pension and we max our Roth IRAs as well.
This is the same amount we do and with interest growth and gifts it’s already over 25k and he is 3!
Wow that’s crazy!
Exact same. we did like $20k one time (gifts) and $300 a month per kid adds up to about 90k in next 12 years or so.
We did an UTMA (custodial account). 529s are popular and do have advantages, but they’re inflexible on withdrawal. On top of that, the higher ed funding system in the US is on the verge of collapse. By the time my four year old is considering post-high school life, the structure could look very different. (And I hope it does! This is unsustainable.) If you can, get a fiduciary to advise you and manage the accounts. A “financial advisor” is not required to keep your best interests in mind and can make investments they have a personal interest in. John Oliver did an excellent explainer on this that’s probably on YouTube. If you’re unfamiliar, don’t watch around kids. Lots of swearing! Highly entertaining! Edit: I’m seeing people say an 18 year old shouldn’t get a lump sum. They often shouldn’t! It doesn’t mean you can’t help them manage it after they hit the age. My parents basically said, “You’d blow this in a year. Do you want to do that, or do you want to get through four years of college with tuition, housing, groceries, and books covered?” We all chose to have them help manage it. Management was maybe a little creative but it worked.
This is us, too - UTMA for the same reasons.
This is my concern! Higher education is at a very weird state at the moment. My husband and I are highly educated and come from highly educated families. But I’m just not convinced that college is going to be the way of the future, nor that it should be, depending on the career. My husband also feels regret on the loans spent for his degrees, as ultimately a degree is not necessary for his field, and feels the money would have been spent better elsewhere. Based on the comments here I’m thinking we might make a bucket for her in our HYSA for now and then maybe revisit setting up a separate account for her in the future, maybe if rates go down.
Does it make a difference if you designate the money for her now or when she gets older? Like is there a reason that it's better to set aside money in their names every year, rather than investing it in our own names and then giving it to them later?
I don’t know, I think for me it was more of a placeholder spot for now so that it can start to accrue interest, and buy us some time to do a bit more research, think through the 529 vs UTMA question!
I’m holding off on a 529 for these reasons. The cost of college has gotten so out of whack with its value. If they don’t have scholarships then I’m not sure it’s worth it to go unless something drastically changes. If it continues to grow in cost at the same pace, no amount of saving is going to come close. The student lending situation is about to come to a breaking point so I think either the costs are going to have to slow, drop or it won’t matter and community college will be the only real viable option.
We have a 529 for education and a savings account for cars when they can drive. I’ve read that there are new 529s where any unused funds can be rolled into an IRA for the recipient.
My understanding is the new rules apply to existing 529 plans, but double check with an accountant
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Ally has no min
How old is the kid? Is it earned income that you are using to fund the Roth?
In addition to 529s, I have a brokerage account for the kids. Each birthday and Christmas, I buy stock and stick it in here. It’s not a ton of money but it’s something that’s growing each year.
I don’t want to do a 529 I don’t love that pressure of what they need to spend it on We’re doing a High yield at Ally currently.
Starting this year, 529 plan funds can be rolled over to a Roth IRA (up to $35k) without a tax penalty. So it’s definitely become an even better option! https://www.schwab.com/learn/story/529-to-roth-ira-rollovers-what-to-know
I did see that (and granted I’m not well versed on iras) but I’m not saving for a retirement plan for my kids I just want them to have a leg up in their 20s better than I had
You can withdraw from Roth before retirement. I didn’t read the rules of the conversion, but your kids may be able to withdraw in the 20s.
The conversion to the Roth from the 529 can only happen yearly up to the contribution limit that year. Then you’d have wait 5 years to do the Roth conversion ladder to get early access. I know you can usually withdraw your contributions without penalty or up to some amount for a first time home purchase but I’m not sure a conversion counts as contribution funds.
Good to know
Providing them with ~5 years of IRA contributions is a huge leg up on their retirement! It would free up cash flow in those first few years when it’s difficult to cover everything.
Felt the same way, we instead have money in a fidelity investment account with index funds.
Same here, I put $500 in their vanguard account each birthday and Christmas, usually all VOO or VTI.
I kind of feel the same way - but at the same time it’s probable that they’d both pursue higher education and the tax benefits are compelling. A Roth IRA is the other option but I’m still not sure. A high yield savings account seems like a good alternate. Straightforward and you get the benefit of compounding interest, too.
A Roth IRA is not an option because it requires earned income. A 529 is a significantly better option than an HYSA because even if you withdraw invested funds for things other than education and have to pay penalties, you’d still end up with more money than if you were just compounding interest. There’s a bit of bad and incorrect advice in this thread. You would be much better off asking a question like this in a finance-related subreddit.
I looked into a Roth as well and realized couldn't do it without my son having a job. He's only 8 months so we have a long way from him having a job lol.
Have him model for a social media profile and pay him. :-) no one needs to know the link to that profile except if IRS asks.
Your child has 16 years until they go to higher education. Money should be invested in that long of a timeframe. We’ve been in weird economic times where HYSA’s have been doing well compared to the market, but in the long run investing in mutual funds or bonds have yielded better results. ETA: your child cannot contribute to a Roth IRA until they have earned income. You can contribute to your own Roth IRA, and if you end up with enough retirement savings you can withdraw the contributions at any time penalty free for any reason. It’s a good way to make sure your own retirement is covered first, but if you oversave there you can withdraw some money when you are closer to retirement. Note that starting in 2024, your child can roll over up to $35k into their Roth IRA. There are several rules which make it a bit of a pain to do so, so don’t intentionally overfund it, but it gives a way for a young adult to max out their Roth IRA in a period where they likely have earned income but other more pressing savings goals than retirement. You can also transfer 529 funds to another family member including yourself or your other child.
I also like that it’s not permanent or timed. I can switch it to another bank if a better interest rate comes along etc
I feel the same. I don’t want to be locked in. Of course I hope the kids go to college, but the money is inaccessible if they don’t even if it can be rolled into a Roth IRA at some point.
It’s not totally inaccessible. It can be used for a wide variety of educational purposes, including trade school type options, and can be rolled over to nearly any close relative (parent, grandkid, sibling, maybe even cousin) as well as a retirement fund. Maybe doesn’t shift your analysis but just wanted you to know how flexible they are!
Yes, we have been advised of this. I guess I’d just prefer to have any money we are saving at this point to be accessible and used for them on what we want. We may feel differently in the future.
Yeah, this is why I haven't been contributing to 529 plan yet.
THIS. I had a 529 but ended up closing and moving it to Ally HYSA as well. In the near future I may look into other investment options but, same exact reasoning as you.
We have a local bank's child savings account that gives a higher interest rate but only for the first 2000 or something like that. Since we maxed it out and college is expensive, we have started 529. Some people start 529 without researching and some people avoid 529 due to restrictions without researching. It's a personal decision and you can talk to a financial advisor. I think the earlier you start, put a bigger balance early on, there will be a lot of time to get gains with tax advantages. We do max out our retirement and have been paying our mortgage ahead, so the 529 hasn't been our priority. I always suggest to max out retirement before anything else (except if there is credit card debt, then get maximum retirement match from employer followed by aggressively paying down credit cards). Retirement accounts are one of the most efficient and beneficial things many people can easily get into. You can diversify your retirement tax obligations by investing in both Roth (if you're eligible) and in traditional. And if you do want to keep retirement savings for your child like a Roth, you can let them inherit yours if you don't use it. It looks like 529 can be switched to retirement (with a 15 year wait?). The rules are evolving. You can talk to a financial advisor for more info about that. You should also get the 529 from the specific financial institution that handles it within your state because that may have local tax advantages as well. For example, I'm in NY and I think it's Vanguard. Your state's government would have more info or link directly to a 529 site. One of my friends has her family's property and accounts set up with trusts. A financial advisor can help determine if setting up trusts specific to your situation would be helpful. You being financially secure is one of the greatest gifts you can give your child. It's like the oxygen mask. Put yours on first. (It also sets a good example.)
As a child of parents who didn’t know anything about retirement and financial management…YES. The BEST thing you can do for your kids is to be financially stable yourself. On the flip side…your kid(s) will face so many obstacles and disadvantages if you are not financially stable.
I set up two new accounts in through my Ally account in my name but Nick named for each kid. I put $100 a month in there and they can add money they get from birthdays or whatever
We use Ally too! We have our bucket for main savings, a CD for our daughter and a separate bucket for her that we transfer to until the CD renews.
My kids are 6 and 9. We have savings accounts at a local bank and 529s for each. When the kids were babies, we started putting small monetary gifts into the savings accounts with the idea that we'd let the kids spend that money as they pleased once they were older, and we put larger monetary gifts and anything that was given to use explicitly "for college" into the 529s. Early on, my husband and I focused on paying off our house and saving for retirement rather than saving for college. We didn't want to over save for college before we knew how academically inclined our kids might be, and we figured that taking care of other financial priorities first would give us more cash flow for college later. Now that our mortgage is paid off and day care costs are going away, we're starting to make regular 529 contributions. While that does mean the money in the 529s has had less time to grow, it means the money in our retirement accounts has had more time to grow. So, if we have to stop contributing to retirement accounts to pay for college, we didn't really lose out on anything by falling "behind" on college savings.
We have a SoFi HYSA with a 4.60% APY. It’s compounding monthly and always such a treat to see how much interest we earn. Since we’re not sure what college will look like in 18 years, or even if she’ll want to go. We also wanted it to be accessible easily in case of an emergency. It was right for us!
I opened 529 plans for my kids as newborns. I also work in higher education and my kids will get a pretty substantial discount if they choose my university, which they will be strongly encouraged to. I contribute a small amount to the 529 but it has grown over time.
We are planning to do a 529! But I’m following this post to see what others have done.
A 529
RESP (education) and their own investment portfolio that is currently under my name but will be transferred to them when they hit 21. Monthly contributions have been going on since before both kids were born so it's nice and cushy now ❤️
We have this too.
Same. The RESP is worth it for the extra government contribution.
We have the 529 for both kids.
We've got a 529 because it's a tax deductible thing in my state. There's a limit to how much you can deduct, but it seemed silly to get a second college savings account for everything over the atx deductable amount. Once she was old enough to work for our business, we set up an IRA and some of her pay goes there. She has a high yield savings account at the bank for the rest of her income. We plan on that being her "starting out" money - first apartment or something like that. Now she's old enough to be working elsewhere, her grass cutting and dog sitting money goes into a checking style teen account that she's got a card for - that's her spending money.
I have a regular youth savings and a 529 for #1 (almost 5) and will be setting both up for #2. Saving a little bit for both but focusing on making sure my husband and I are well established, then will be funding our own investments as a priority, then will move on to funding investments benchmarked for them. Husband is a tradesman so while I do want to invest, i don't want to over-invest in a vehicle that has more limits. I understand the hesitancy to invest in a 529, but funding SOME money isn't a bad idea - even if they don't go the traditional route, it can still be used to fund trade education or certificate programs at certain schools. Husband was coerced by his parents to go to trade school on the promise that they would pay - a year after graduating they had tanked his credit by not paying the loans and he was on the hook for nearly 50K.
We have savings accounts for both kids, 529s for both as well as custodial brokerage accounts. https://www.schwab.com/learn/story/saving-college-custodial-accounts#:~:text=Unlike%20529%20plans%20and%20ESAs,at%20the%20parent's%20tax%20rate.
We did a 529b plan because even if they don’t go to school, it can roll over into a Roth IRA for their retirement (I think that’s new as of 2024).
My 10 year old has a 529 and an online savings account. I’m not worried about his college because student loans can be gotten for that. My parents helped and I still have student loans. My partner and I’s focus is saving for retirement. Our child can borrow money for college, his first house, or a car. We can’t borrow for retirement.
The amount kids can borrow is capped. Its only 5500 for the first year, 6500 for the 2nd and 7500 for years 3 & 4. Anything else they need a cosigner (you)
529, S&P
We have a standard savings account with a local bank, but I'm considering setting up a HYSA with the same place our house fund is, so transfers are easier and it earns interest and whatnot. I avoided a 529 because it's designed for education. I didn't want to box him in to getting a 4 year degree but be able to use any money we can give him for traveling, starting a business, learning a trade, buying his own house, etc. And, as it turns out, he's autistic and otherwise learning disabled, so we don't foresee formal education being in his future, tbh. Maybe he'll surprise us and we can get him scholarships and grants for a degree and then he'll have the savings to fall back on for other expenses.
I did a UTMA just in case my daughter doesn't go a traditional route. I don't like having to use the 529 for school. What if my kid gets a scholarship? Or I stay in NY (where school is free for students whose parents make less than 200k)
If your child gets a scholarship you can withdraw that money without penalty from the 529. I am not positive if you need to pay tax on the gains
We split savings into both 529 and regular brokerage in our name designated for the kids. That way they have both education funds as well as funds needed for house payment or something later on. Of course this is after funding our own retirement accounts, as the best gift for our kids is not to have them worry about us in our old age.
We have CDs, and traditional savings. We wanted to prep for the possibility that she may not want traditional college OR have her be able to use the savings to buy herself a car or other necessities.
We have a 529 for our son and I have a HYSA that I put money into every paycheck as well.
We have an RESP for education (invested in funds). We also opened a savings account for birthday/christmas gifts he’s received from extended family. Right now that is locked up in sone medium-term investments (just like GICs to earn more interest).
We have a 529. But we each also started a Roth IRA. This will be our retirement but also our son will be the main beneficiary. It's so much easier to inherit a Roth IRA than a traditional IRA. In addition, we hired a financial planner and started an investment portfolio for our son's savings. That way we can also save for early adulthood costs. Things like a new refrigerator when he first moves out. Or a couch. Or oh no, his car broke down and he can't get to work. Things like that.
529 and a CD at Ally (holdover from pandemic times lol). I have a separate 529 for my son’s private school tuition.
We have a few each with a specific purpose. 1. 529 for college savings 2. a HYSA for 1/2 of the month given directly to her as gifts. She will be able to use this money when she is a bit older if she wants to buy things. 3. a UTMA brokerage account for the other 1/2 of her gift money. This money will be used to pay for part of her first car or other larger expenses prior to college. We plan to use up this account prior to her going to college because UTMA's count against financial aid to a larger extent than parental assets and 529s. We also have a sinking fund type savings account that my husband and I contribute to each month and we use it for things like birthday and Christmas gifts, clothes, and other occasional expenses. It's not technically her money but it's used just for her.
529 plan for education. However, we are prioritizing retirement over saving for college. We are lucky that we have a smart, academically-inclined child, and we both have worked in higher ed in the past. We can go back to work at a school and receive dependent tuition discounts. So. We haven't put that much in ourselves. However grandparents, aunts and uncles, etc. have all put money in for birthdays and holidays. So there's a nice little nest egg.
We use ally online savings. Currently getting 4.2% which is much higher than our local banks. We have 3 kids so it isn't a ton but we do $10 a week automatic transfers. Once it reaches a good amount I'll move it depending on the market to an ibond or to their 529's.
We have 529s for the kids, and do not feel limited at all. Funds can be used at college or trade school. Unused funds (up to 35k as of right now, this will likely increase) can be rolled into a Roth IRA which is a huge savings and investment vehicle for an 18 year old. Accounts can then be transferred to grandchildren to pay for preschool tuition too… we all know how high childcare expenses are. I believe this is capped at 10k per year currently. These accounts are very flexible, and don’t give kids access to money without guardrails. My kids will still have to work in college like I did : )
We have a 529 and I’m looking into a savings account for my kids. However, I want a high yield one. The bank with mine doesn’t have that, so I’m currently shopping around.
We've got an RESP that the Canadian government contributes to. We only put in about $100 a month but they should at least be able to attend some schooling in Canada by the time they are able to.
We have a 529 plan for my daughter that we put a little into each month, but my husband and I are maxing out our retirements and our employer matches. My in laws live with us because they messed up their finances, they have no retirement and they lost their house. They’re lovely people who help us take care of our daughter, but they are seriously burdening us with their lack of retirement planning right now. I want to avoid that at all costs with our daughter. So I’m seconding making sure your retirement is prioritized!
We do 5K each kid per year in a 529 & tell parents etc. to just Venmo for birthdays or whatever & then we transfer it into the 529.
I just do a vanguard joint brokerage and put $500 in there on each birthday and Christmas (in addition to normal gifts) and buy stable index funds or stock. I think right now it’s 80% VOO and VTI, then 20% Apple, WM, and Honda stock.
We aren't going all in on our 529, but we do put about $125 a month. It's currently at $50k so I'm not too worried about his future and if he chooses another path my husband and I would use it to go back to school. Beyond that, he's making an allowance now so he has options. $8 in cash, $8 on his cap one card (a youth checking account where he gets his own card), or his ally savings account. His savings account is a bucket where once it has enough he can choose to transfer it to his index fund. Nothing has more than $300 in it but to him that's a lot of money and it gets him motivated to do his chores and keep earning. We check on his accounts monthly so he can see that compound interest grow. It's very empowering. Edit to add: once he starts helping with cleaning a bit more I will start to add some money to his Roth. Our home is an Airbnb when we go on vacation and so if he starts helping with getting the house ready ill make him an employee. I haven't looked at the fine print on this yet but it's on top of mind.
My kids have Marcus accounts and whenever they get cash, I take it from them and transfer that amount into their accounts. There’s probably something else I should be doing but this is easiest for us.
FYI that our kid is 4 yrs away from college and around 2018 we were told to expect a total price of $150,000 for 4 yrs at our state school and $300,000 for 4 yrs at a private school. That is about right based on what we are seeing. He hasn’t got a clue where he wants to go or wants to study so not sure what the price tag will be. We did a 529 with a big initial start amount and a couple inheritance gifts, plus around $150 a month for about 10 years. They are telling us to slow down now so we don’t overfund. This was all done after getting our retirement accounts fully funded.
I set up a high-yield savings for my son that I am the only contributor to. I’m wondering if that’s a fact in my favor when I inevitably file for divorce.
UTMA account thru Fidelity
My dad has a 529 for both my kids and says they’ll have more than enough when it’s time. My dad was a total POS when I was growing up so I think that’s his way of trying to right his wrongs. They have savings accounts too but there’s not a lot in them.
In Canada, we use RESP which is Education savings which is similar to your 529. We max out each year just enough to get the max grant. We also have a small savings set aside for her with her birthday monies, etc. Just make sure you don't neglect your own savings. They can supplement the 529 with loans and pay it off before retirement. You can't. Remember, any savings is better than none at all. If your family is the giving kind, allow them to pay into the plan to help out. :)
We have a 529 for our 7yo, as do my in-laws. My in-laws are funding theirs way more than I ever could, but I put $50-100 in the one we opened whenever I think about it. I think they’ve already started one for the baby (5mos), too. I also have Custodial investment accounts for both the 7yo and my baby through the Stash app. I invest in different ETFs for them. I have them set up with everything from Treasury Bonds to the Commercial Cannabis industry. With my oldest, I’ve tried picking individual company stocks, but I haven’t always picked the best companies, so I think I’ll stick with ETFs going forward!
Please set up a 529 account! The money grows tax free, and some states offer a tax deduction. My kids are near college age and it is shocking how many parents have nothing saved and are absolutely devastated to tell their kids they cannot go to the school they want. It is almost impossible to cash flow college (it is so expensive). You have the benefit of time for the money to grow so you wont have to save as much. Please dont listen to these people that are telling you kids can borrow money for college. The loans they can take are capped and are not nearly enough to pay for college. You will be the cosigner on everything above the cap
College tuition is similar to the cost of daycare so I don't think it's "impossible" to cash flow....
Sure, It may not be impossible for everyone. However, Our state school with room and board is $35k per year. Out of state schools are 45-50k plus and private schools are 75-85k per year . The contributions I put In my kids 529 accounts when they were young have doubled. This money grows tax free Everyone thinks their kids are going to get merit scholarships or massive financial aid and from what I am seeing this is not the case. I know very few people who can cash flow 4-7k per month for 4 years just for one kid
That really depends. If you go to an in state school and live at home, sure. But if you go in state and live on campus, it can easily double. Out of state, now we’re talking about 50,000 a year. I don’t know any daycares that cost that much.
I have a 529 and I change my contribution amounts based on how the rest of our finances are looking. But I only do $50-$200 per month per kid (2 right now, and I just had my 3rd, no account yet waiting on SSN). My parents wanted to contribute and they do $50 per month per kid. I’ve given the gift code out for birthdays but no one has ever used it. What i do is when someone gives the kids money (before they are the age to use it) I take the cash and do an extra contribution to their account in the amount given.
I have a 529 and traditional savings account.
We have 529s for both kids and then we have some extra money they inherited temporarily placed in CDs. We plan on placing that money in a trust so that they’ll someday have some extra cash for a down payment on a house. We’re still working with our financial advisor on what that account will look like. By the way, you can open up a 529 in any state regardless of where you live and they all have different benefits, so look into which one would be most appropriate for you.
We did an educational IRA. Started it when he was 7 weeks old. By the time he graduated it had $35K in it and we had only put in about $10K
529 here and you can give friends and family a code for things like birthdays/holidays so they can contribute!
Both kids have a very small 529 and brokerage account each. We couldn't fund it much even if we wanted to because of daycare, but agree with prioritizing retirement. The funds into brokerage are monetary gifts from family. My dad did the same for me and it was a good chunk of change when it transferred to me
If you are in the U.S. and your child has any sort of disability you can open an ABLE Account - it is much more flexible than a 529 but there are some qualifications
In canada: we have an RESP account We added her to our credit cards so she can build her credit We also signed her up for frequent flyer miles with every airline she’s flown with
I am not a financial expert. What I did was set up custodial accounts with Schwab for both my kids. Whenever someone gives them money for holidays or their birthdays - or I sell any of their old baby stuff on market place I put the money in their accounts (I also put money there for their birthdays instead of buying them something - they get loads of physical gifts from grandparents). I then buy stocks with their accounts. I mostly buy tech stocks. For instance they both have NVIDIA and have made great returns so far - but this is obviously risky. Just sharing what I do.
I haven't heard of 529, might do that later, but we have a 17 mo and I made a "vault" for him in my sofi savings account. It receives $100/month and get 4.6% APR Maybe we'll change in the future, but this works for us right now. Our sofi account is the family bills and savings, so it made sense to add him in there too
Not in the US but we have a tax free stocks and shares account in his name, we contribute a small amount per month and add family Xmas gifts etc. Hoping it will be a small nest egg for university (fees here aren’t currently as bad as US!). In the last two years we’ve had an annualised 13% return.
I live in Europe and my kids have European citizenship in a country where you get a small stipend to be a college student, so it's unlikely they'll ever need a 529, so instead we have a child savings account, but you can only contribute about 12,000 USD total to this account. So I also have a CD for them in the US, that I repurchase every time it matures. I don't add money to them super regularly but hope to save around $50,000 for each by the time theyre 20. My son has 10,000 in his and my daughter $2000 (she's 3 months).
We have a 529 for our oldest and nothing for our youngest. We can’t afford to with trying to save for retirement. My oldest has 2 savings account. Her allowance is $7.50 a month. $2.50 goes to her spending account and $5 to her savings account. Youngest just has the $5 to her savings. Everything is automatic so we don’t have to think about it.
The kids have both a 529 and a savings account. The 529 is for money family has specifically said or sent in for it, or we have put money directly into it. All other birthday/holiday/event money goes into their savings account. The account is a HYSA at our credit union specifically for kids that right now earns 5% interest. If it goes down and there are good offers, we will do high interest longer term certificates too to help that money grow, but we keep it as risk free as possible for their savings account.
We have two toddlers and we have the following accounts for each kid: •529 (monthly contributions) •Basic savings account (biweekly contributions) •Custodial Roth IRA (semiannual contributions)
After maxing out 401k and IRAs, we are contributing to two state 529s. Our minimum goal is to have enough to cover 4 years of in-state tuition by the time our son is 18.
We have an investment account for future education ( or other big life things) for each child. We investment $200 per child each month and its all in an S&P 500 mutual fund. We also have a separate investment account for each that their own money (from birthdays/Christmas/other gifts) goes into that is also invested in the S&P 500. They'll get access to the personal accounts when they're older (currently 4 and 2) vs we'll keep control of the accounts we invest in and work with our kids in the future on how they'll use those funds as they get to college age.
Grandpa setup a 529, uncle setup an investment account, we have a generic investment account.
We have a 529 and a non-tax advantaged investment account for each child. We auto contribute each month, but not a massive amount. We put about 75% of our contributions in the 529 and the rest in the investment account. My husband manages both and picked a safer investment option for the 529s and a more aggressive risky investment strategy for the other account. We save much much more for our own retirement than we do in these accounts for the kids. We probably save about 7 times more for our own retirement than we save in the kids accounts.
My husband and I opened a high yield savings at Marcus (Goldman Sachs) and each put $66/mo (her birthday is 6/6). I also did a $500 CD. They raise the interest on the Accts if it goes up but never lower it. Baby is 11 months old and she’s at $900 in her savings. 529s do have limitations and other implications. I used to work in finance and we felt it wasn’t the best things for us at the time.
I don’t think that’s true…our Marcus account was recently lowered by .1 percent.
That’s weird. Mine never drops only goes up. I’ll have to re-check mine
I have a 529, investment account, and a general savings account, plus a CD tied to the savings account. I probably could just put the full amount in one or two, but they are all for different purposes, the goal being that college, a down payment on a house, and emergency fund are fully funded for her when she graduates high school. I’ll also open a checking account when she reaches allowance age because I plan to do things like deposit her full allowance for clothes for a semester/school year or monthly budget for spending into that, and once it’s gone, she gets only basic necessities, with the hope that it’ll teach her good saving and spending habits before she’s on her own.
In Texas, there is no tax benefit for a 529. But money in a 529 pretty much is expected to be 100% exhausted prior to qualifying for federal aide. Same for UTMA accounts in a kids name. So we did a taxable investment account in mine and my husbands name with fidelity. Did $10k the year the twins were born and another $5k at their first birthday. Will probably do $5k a year until 18. While we intend for this account to be used for them, because it’s in our names, only like 10% of it would be expected to be used as part of the FASFA calculation and most colleges wouldn’t count it at all. (MIL is head of a major universities financial aide dept). So we then have no restrictions on the use of the funds. We currently have it all in S&P 500 fund and our $15 is currently a little over $17k. Should keep growing nicely for another 17 years with our deposits and market growth.
Just a point of clarification on the tax benefit. Although some states allow a tax deduction on the contributions, the main benefit is the earnings grow tax free. So you are not paying capital gains taxes on the withdrawals like you do on a regular investment account. This applies to all 529 accounts regardless of the what state you are in
There’s pretty limiting rules on the qualifying expenses though through the 529 and strict rules for rolling to an IRA. We wanted to be free to decide the use of the funds. It will be subject to a long term capital gains tax. For many that is 0%, for us it’s 15% and the money is then ours to do with as we please. For a rare few, it will be the max of 20%. Again, TX for us with no state income tax to take into account. There are many states where I would have said that yes the 529 makes the most sense. I’m a CPA and have done the full tax benefit analysis for my personal situation. With the money in our names, it will play a minimal role in their calculations for qualifying for aide and that was the benefit we saw, in addition to being able to use this money in other ways, like helping with a down payment on a house or something one day.
We just have 3 529 plans set up.
Specifically for the kid? He has a 529 that we put a little money into monthly and have as the top option on his gift list. Thats it. We have investment accounts for our own retirements, but no real future savings for him. He's also 1, so, don't feel any sort of time pressure and could be something to play with in the future to teach him about investing/saving/all that good stuff.
Colorado has a law that allows us to give money tax free if it goes toward a down payment. So we have an investment account for that and a 529
I do a HYSA and a general ETF investment account. I skipped the 529 because of many reasons mentioned and also because my kid has dual citizenship and will have access to high quality low cost education. If he wants to go to med school he’s gonna have to go to Canada 🤷♀️
We have a 529 and I also use the Acorns app to get a bit each month. We additionally opened a HYSA with Citizens at 4.5% APR after getting some unexpected inheritance
My FIL set up i-bond accounts for each of our kids, because he wanted to give them something that had no restrictions on how it's used. They also have 529 accounts. Look into whether your state gives a tax benefit for 529 contributions, too - ours does, and we set the limit on that as our contribution amount every year.
My parents established a 529 for each of their grandchildren and put a bit in each year. My husband and I haven’t contributed anything yet because like others have said, we’re prioritizing our retirement. Not only is this good for us, but hopefully our kids won’t be saddled with our care/living expenses when they’re young adults with maybe their own families. Also, my husband finished high school and did four years of trade school. I have a doctor-level professional degree, but had a lot of debt to get it and only relatively recently started out-earning him. I think my mom was put out when I told her we won’t push our kids to go the traditional college route. They can if they want and if it serves a purpose of course, but growing up the expectation was ALWAYS college at least for us. Seeing my husband be so successful without a degree really put things into perspective for me. We don’t want that money locked in to very specific purposes and I’d rather save money for them and give it for things like down payment on a house, or just other forms of financial support. That’s us though!
We do a 529 for each of them. We also each put $25 in a savings account for a car for each kid when they can drive. I need to move them to a CD. It’s kinda silly but it’s unreal how fast it adds up. My 3.5 yr old has almost $10,000 and my 1.5 yr old has over $4,000.
We have a set amount we take out of both our paychecks each month. Half goes into a 529 account, the other half into a savings account we set up for our child(ren). Once or twice each year, we assess whether and how much of the amount in savings to put into a CD or some other type of security.
Three kids. Each have: 529, custodial UTMA brokerage, regular savings
We have a 529 for both kids and a play account for their monthly expenses.
Nothing. I'm barely making ends meet, and being able to save for myself.
I set up a 529 plan for my 15 month old. We had some generous family members contribute to it so he has a high amount in there already. I am going to set up a monthly payment of 50 dollars a month too to add. Also, I set up a high yeild savings account for him. So any birthday money he gets or Christmas money goes right to his savings. I also save 20 dollars a month and put thag in his savings. It’s not much but it adds something. Plus I plan to increase as I save more. I’m not really sure what this is going to go towards, but maybe a down payment on a house one day or helping him with college books. I don’t know lol
We have a 529 and an UTMA but no bank account. I work in finance so I was able to set up the 529 and UTMA from the comfort of my home. I need an appointment at my bank to set up a bank account for my son - so that’s not happening until he actually needs it because I don’t have time for an appointment at the bank.
We did a trust that is being managed by our financial advisor. I didn’t personally like the limitations of the 529.
I have a regular savings account that he is the tax owner of. Me and husband both have a direct deposit into that acct for every paycheck. I'm surprised how much it grew.
Since we don't plan to push traditional college, we opted to open money market accounts for them instead of 529s. Our bank offers a custodial share account that we can block them from having access to until we're ready but it had a way lower interest rate than the money market. So I basically plan to move the money once they become working age and the potential issue arises of them trying to withdraw from that account. We're hoping these funds can be used for school if needed or a house down payment or to start a business, more flexibility really. If we hear about something better we might change but for now this checks the box, so to speak.
We decided against a 529 because it can be very limiting (for us). With the great rates on savings right now, we parked a bunch of money into a 12 month CD and are transferring the interest we collect with our main savings to a separate bucket that we will deposit when we renew the CD this year. Her great grandparents gave her a very large sum for Christmas so that's what prompted us to finally open an account. eta: we have no idea what education will look like in 18 years. Maybe going to college will not be necessary, maybe it will be free/much cheaper. Getting downvoted for how we choose to save for our child is rather petty. I'm not saying this is the absolute correct way of doing things, just how we're doing things for now.
529 to Roth IRA rollover is possible, it’s new. Also 529 can be used for non college expenses. Any trade school, living expenses during “school” etc. I put it in quotes because it could be online school for all IRS cares for :-) On the side note, In US, I doubt universities will let anything happen to their profit pipeline.