I’m 30 years old and make $65,000 a year. I have a 10 year old son.
A 529 college savings plan is a good option. For more information, visit https://www.nerdwallet.com/investing/saving-for-college-529-plans
I would suggest two methods:
- You can immediately start contributing to a 529 plan. It often makes sense to open the plan that your state has established, as the contributions have the potential to be deductible for state income tax purposes. This account can grow tax free as long as eventual withdrawals are used for qualified education expenses.
- As soon as your son has earned income (from a summer or part time job), it can make some sense to have him contribute to a Roth IRA. Similarly, Roth IRA contributions can be withdrawn without penalty to cover qualified education expenses, while any leftover assets can remain in the Roth IRA to help fund his retirement. It clearly can be difficult to encourage a teen to contribute their hard earned summer job income to a Roth, so just save aggressively on the side so that you can have him contribute his wages to the Roth and you gift him the same amount for his own use.
The Roth IRA approach is a bit more complex and you should probably work with an advisor to get it done… Thus, I would start as soon as possible on the 529 plan.
Adam C. Harding, CFP
Disclosure: For informational purposes only. Not to be considered investment, tax, or legal advice. My responses on Nerdwallet are for educational purposes only and action should not be taken until a thorough analysis has been done by me or your financial advisor. Investing involves risk of loss and diversification does not ensure protection against risk of loss.
I have written on this topic in some detail, here is recent article that I think would help:
The 529 Plan is a great tool but a little overused. As my article mentions, maxing out your Roth IRA, if possible, is usually the best holistic strategy. For most people, retirement should come first. It is still early but one advantage of using retirement accounts first is they are not used for most financial-aid calculations (FASFA – The Free Application for Student Financial Aid)
Other education-friendly, what I call dual-purpose accounts, are:
· I-Bonds (has some inflation protection)
· 529 Prepaid Tuition Plans (will match a specific schools inflation)
· ESA Account
Other accounts used:
· Muni Bonds
o Has limited value for most, is oversold for education due to high sales commission
We also offer a very affordable online class on 529 Plans:
I also believe parents should start to think about college differently:
Mark Struthers CFA, CFP®
For Sona’s Educational Series KnowThis! KnowThat! go to:
This is for informational purposes only. Your specific situation would need to be taken into account. All information is subject to change. Not to be considered investment, tax, or legal advice.
You can also just open a taxable brokerage account. Buy 10 to 20 individual stocks and let them ride. I’d only invest in stocks that are part of the S&P 100 or Nasdaq 100.
In 8 years when your son is ready for college, see where your stocks stand. If you have all gains, your taxes will be long term. And of course you wouldn’t have to sell them all. I’d also bet your performance will be better that funds in a 529 plan.
If you have some gains and losses, you can offset some of the taxes.
If you only have losses, well, that would suck. But you could either lock in losses for carry forward or let them ride for your retirement.
You’d have a lot more flexibility than with a 529 plan. I like 529s, but I’m just giving you another option…
Hope that helps!
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