If you are happy to trust financial information without second-guessing, then you will not enjoy this post. Personally, I can’t trust anything without significant evaluation.
I recently tried to plan a way of investing in my nephews future, but I do not assume that they will all go to college. So I want an option that does not require college enrollment to access the money. Basically, no plan takes away the money because the kid doesn’t go to college. However, there are fees or penalties for withdrawing money for other purposes.
Surprisingly, Roth IRA’s are listed as an option for savings. Money used for education can be withdrawn without the typical penalties if the money is withdrawn before the minimum age. But the child has to be old enough to have a job to enroll in this plan. I like the fact that this plan encourages the kids to keep the money in the IRA account if they don’t use the money for college; so that the money grows even more over time.
With each savings option, there are concerns over fees, impact on financial aid for the kids, and tax issues. I found this comparison table very helpful for making my decision. According to this financially savey engineer, it may be more profitable to rely on tax credits instead of tax savings. Also, not all 529 plans are good plans, some have better investment options than others. Tips to know about 529 plans:
- You can change the investment options for the plan once per year
- You can chance the beneficiary for the plan once per year
- Check the list of qualified expenses the plan $ can be used for
- When you withdraw money from the plan, if it’s paid directly to the student instead of the institution, there may be a penalty to the student on their Financial Aid Application for the following year
- Read the fineprint for any plan before enrolling
I’m not knowledgeable enough to help you decide, but here are a few resources:
- Tips for understanding savings options
- 2012 Rankings of 529 plans, Top Ranking over last few years
- Saving for College website