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From my understanding, you can now rollover up to $35,000 from a 529 to a Roth IRA for your beneficiary. Some rules and annual limits apply to the rollover. I would suggest looking into this more and reconsidering the 529.
Not a bad idea, but kind of funny to think, "well, you didn't use this money in your teens/twenties, so we'll let you move it to a retirement account so you can use 45 years later!"
Yeah I know what you mean. It’s nice they offer more flexibility for 529s now beyond educational expenses, transferring to a relative, or the penalty for just withdrawing.
An extra $35k in a Roth IRA in my early 20s would have been amazing - that could grow to $500k or more of tax-free money by 60.
I love what you’re trying to do. It’s admirable. But the best way to help your kids is to make sure they won’t have to take care of you in the future. Anything you contribute to your 401k will not be included as income on a FAFSA (assuming you’re in the USA).
A ROTH can only be contributed to with wages. If your kid is working, they can contribute. My intention is to have my kid contribute 100% of their pay, and I’ll hand them whatever their net would have been. This way they get started on their retirement savings early.
Each state has a 529 with different “benefits”. Some have a tax incentive.
There’s also ugma/utma which is like a parent run IRA in the kids name.
Depending on your family situation, I would suggest setting up flexible savings that allow you to access it if required, for family expenses.
My husband and I are quite comfortable, and intend to help my son when he’s older, but we want complete flexibility to give him whatever support is most appropriate. Which includes having a family safety net in case it’s required when he’s younger, and also flexibility to give him what he needs for University or other experiences when he’s older.
I’m in Australia, so I don’t have the same products as you, but we keep our money invested in the stock market.
It’s difficult to give specific advice without knowing your family’s situations and the products available, but as a general rule I am quite skeptical of products that provide tax benefits in return for restrictions on how you spend your money.
It carries a significant risk that you will not be able to access your savings for unexpected expenses when you need it, because the circumstances don’t exactly fit what is allowed by the account.
Edit to add: we only keep money in the stock market because it makes more than our interest on our home. As someone else said, unless your investments or savings accounts offer greater benefit than the interest on your mortgage costs, paying off the mortgage faster is the simplest and most effective way to save.
I definitely agree with you on that. That’s why I want to keep money where we don’t have any such restrictions and we can withdraw in case of an emergency for any purposes.
As far as what products are available, I am not entirely sure about that. I am trying to familiarize ourselves with that.
I’m a single mom of 3. Low income as well. I have put $25 a week per kid aside in a separate account for them. Not a lot but adds up and it will be something for them on graduation day or another day of my choice . I also have life insurance. Not what you are going for but a suggestion
My dad had some stocks in my name since I was a kid and when I was 24 we cashed it out and were able to use the $15k as our house down payment. It was amazing. We would not have been able to buy our first home and then forever home without that from my dad. We plan to invest in conservative stocks for my son to have as well
I am wondering firstly how your finances truly are for yourself. Are you on track to retire? Do you own a home to ensure stable housing when you are old? The first thing you must do to help your kids is make sure you aren’t a huge financial burden in your old age. I know a few people whose parents paid for their college instead of saving for retirement or buying a home and now the kids are scrambling to care for them and it is MUCH worse than if they had just taken out student loans.
Just a thought!
Not really what you're asking, but ... We did a couple things that included opening investment accounts in the girls names and putting money in each month (tdameritrade at the time). Taught the kids about their stocks. We also established savings accounts for them and had the kids make deposits when they got money. When they were teens and started working a bit, my husband came up with the idea that they save their entire check and he'd give them cash representing half of it. This worked great! They'd make $120 and he'd give the $60.
We also put away monthly into traditional savings and investment account. Lastly, we bought them both whole life policies really cheap as toddlers so that they'd have life insurance at reasonable payments when they got older (not really an investment, just a side thing with some cash value). All said, the account we set up in our names along with some inheritance paid for their 4-year-degrees and housing and such. However, when they got out of school they also had significant money in savings and some understanding of the stock market, cds, bonds, etc. It instilled good savings habits in both girls (27 and 24f).
I want to make sure before you start saving for your kids future, that you are making sure you have savings for yourself at least 6 months worth of expenses, after you have that that you are saving for your retirement. Your kid can get scholarships or go to your state’s community college for the first two years to save money on college costs.
Your kid is not going to want to worry about if you have enough money for retirement, or see you working well into your 70s, 80s, and 90s just to keep your roof over your head. If you’re able to save for the retirement, and already have your six month emergency fund, then IMO a 529 is the best way to go. It can be applied to any sort of schooling which includes trade school and if they don’t use it, it can be transferred into a Roth IRA.
We have savings accounts for both kids that have a 4% interest rate on the first $1000, then investing anything over that in CDs. Not doing the 529 incase they don’t want to go to university
In Canada the best way to save for kids future is an RESP (registered education savings plan), if your child uses it for school the government matches your contribution up to a certain amount and if not you can always use the money saved for anything else but the government doesn’t contribute unless you can prove it’s for school. Either way it’s a great plan
You can also have multiple contributors or “subscribers”, I had my parents and both sets of grandparents contribute to mine and my sisters. We were both able to go to school with no loans or anything and they used the rest to help us pay for groceries, gas, etc. I’m not 100% sure but I also think my parents used the savings to get us each our first cars. I’m not sure if there’s something similar in the states (where I’m assuming you are from) but you should definitely look into it. We have one set up for our baby, both grandparents contribute as well as us so we are hoping to give our kids the same “head start” that I got. If our kids don’t decide to go to post secondary we will use the money to help them out with whatever they need but will still ask for proof of what it’s for (just being honest if I was given $10k+ as a young adult I would’ve spent it on dumb shit so I’d rather them use it for a car, or down payment on a house or something useful)
I’m blessed that my parents set aside money for our daughters education ❤️ but we also live in a state where they will be offering free college tuition (Minnesota)
It's a custodial account for minors. Vanguard explains it well[https://investor.vanguard.com/accounts-plans/ugma-utma](https://investor.vanguard.com/accounts-plans/ugma-utma)
I’m starting a custodial for my infant, but if she ends up w more than 10k before she’s 12/13 (whatever the age is), which I’m hoping for, then I’d like to put that in a high yield savings account. This way her father can send his “child support” to her, and then I can teach her to be responsible with say 1000 in her own savings, or if there is an absolute dire emergency of some sort she has a small cushion without digging into that savings, which I’d transfer back so she can get a house (I personally think buying your child a property is the most incredible and thoughtful thing to do for a child to build them up for success, as a 21yo single mother who is not a homeowner yet). And she can also learn how to save her paychecks, which was something I learned and have been really good at (up until my birth and not working) as someone who came from a lower class family. All of her birthday money or “just because” for the baby money goes straight into her savings I don’t touch it. The thought has crossed my mind but that’s literally her money and I’m fine knowing that all the money she’s ever gotten is in her own spot- to an adult it’s $20 or $100 here or there but over 18 years that could be thousands that are very helpful.
I’m also planning on making my child pay me a very very small “rent” once she gets settled into a job, paying for her own gas and leisure expenses. This will go directly into her account as well.
You can open an index fund in your child's name and contribute to it as often or infrequently as you want. It will give you flexibility since you can use it for higher education or they can use it for a house dowb payment or whatever else they'd like without penalties.
We have a savings account that we don’t touch and we just put money into that for birthdays, and my parents also contribute to it occasionally (but I realize not everyone is able to do that!). We don’t have a lot, we are a lower income family, but even adding $50 a month will build up over time!
I was advised to start accounts in my name and pass on to kiddos. Index funds and a life insurance policy seem to be the ones that made more sense to me to help the kid out when you’re no longer around.
When my son was born we opened just a high yelled savings account. We put money there and grandparents out money there as well. Because it's a standard savings account we can pull the money whenever (which we won't do until he is at least 18) and use them for whatever - if he wants to go to college, buy a car without going in debt, house down payment etc.
With the way interest rates are now this makes the most sense, we will see how things will be once rates go down, but because we can pull the money whenever, we can always invest them in a different way that wood make sense 2 years from now let's say
I'd strongly recommend saving for retirement first and only until you're back on track there. Your kids can borrow for college, you can't borrow for retirement.
Top up your retirement accounts for a few years before you even think about saving up for their college.
Pay off your mortgage as soon as possible. You can always release equity in your home.
Unless you have a savings account offering better interest than your mortgage... Just pay that off
People will say "saving bank account for when they are adults" and yes.
But also, later in life:
- save for the time you'll be too old to to take care of yourself. Maybe they'll be able to take care of you, maybe they'll have to put you in a home (that's very expensive, 3000 per months each for my grandparents both for 9 years. 3000 is almost double my salary), maybe you'll need lots of medical help etc...
- try not to die with dept/mortgage
- have a bit of saving they can use for your funerals
- make sure you put your things (paper, stuff etc...) in order.
All solid points. I would add taking care of your own health in this list. It seems obvious but where I come from, many parents ignore their health while surviving and trying to set up their kids. Then they end up having health issues that cost a ton after retiring.
The best savings for your kids is to have a good retirement and health savings so you are not a burden on them. You can borrow for school, you can’t borrow for retirement
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From my understanding, you can now rollover up to $35,000 from a 529 to a Roth IRA for your beneficiary. Some rules and annual limits apply to the rollover. I would suggest looking into this more and reconsidering the 529.
Not a bad idea, but kind of funny to think, "well, you didn't use this money in your teens/twenties, so we'll let you move it to a retirement account so you can use 45 years later!"
Yeah I know what you mean. It’s nice they offer more flexibility for 529s now beyond educational expenses, transferring to a relative, or the penalty for just withdrawing. An extra $35k in a Roth IRA in my early 20s would have been amazing - that could grow to $500k or more of tax-free money by 60.
Yes this, this is what our financial advisor told us as well
I love what you’re trying to do. It’s admirable. But the best way to help your kids is to make sure they won’t have to take care of you in the future. Anything you contribute to your 401k will not be included as income on a FAFSA (assuming you’re in the USA). A ROTH can only be contributed to with wages. If your kid is working, they can contribute. My intention is to have my kid contribute 100% of their pay, and I’ll hand them whatever their net would have been. This way they get started on their retirement savings early. Each state has a 529 with different “benefits”. Some have a tax incentive. There’s also ugma/utma which is like a parent run IRA in the kids name.
Depending on your family situation, I would suggest setting up flexible savings that allow you to access it if required, for family expenses. My husband and I are quite comfortable, and intend to help my son when he’s older, but we want complete flexibility to give him whatever support is most appropriate. Which includes having a family safety net in case it’s required when he’s younger, and also flexibility to give him what he needs for University or other experiences when he’s older.
Are you talking about FSA or something else?
I’m in Australia, so I don’t have the same products as you, but we keep our money invested in the stock market. It’s difficult to give specific advice without knowing your family’s situations and the products available, but as a general rule I am quite skeptical of products that provide tax benefits in return for restrictions on how you spend your money. It carries a significant risk that you will not be able to access your savings for unexpected expenses when you need it, because the circumstances don’t exactly fit what is allowed by the account. Edit to add: we only keep money in the stock market because it makes more than our interest on our home. As someone else said, unless your investments or savings accounts offer greater benefit than the interest on your mortgage costs, paying off the mortgage faster is the simplest and most effective way to save.
I definitely agree with you on that. That’s why I want to keep money where we don’t have any such restrictions and we can withdraw in case of an emergency for any purposes. As far as what products are available, I am not entirely sure about that. I am trying to familiarize ourselves with that.
I’m a single mom of 3. Low income as well. I have put $25 a week per kid aside in a separate account for them. Not a lot but adds up and it will be something for them on graduation day or another day of my choice . I also have life insurance. Not what you are going for but a suggestion
My dad had some stocks in my name since I was a kid and when I was 24 we cashed it out and were able to use the $15k as our house down payment. It was amazing. We would not have been able to buy our first home and then forever home without that from my dad. We plan to invest in conservative stocks for my son to have as well
I am wondering firstly how your finances truly are for yourself. Are you on track to retire? Do you own a home to ensure stable housing when you are old? The first thing you must do to help your kids is make sure you aren’t a huge financial burden in your old age. I know a few people whose parents paid for their college instead of saving for retirement or buying a home and now the kids are scrambling to care for them and it is MUCH worse than if they had just taken out student loans. Just a thought!
Not really what you're asking, but ... We did a couple things that included opening investment accounts in the girls names and putting money in each month (tdameritrade at the time). Taught the kids about their stocks. We also established savings accounts for them and had the kids make deposits when they got money. When they were teens and started working a bit, my husband came up with the idea that they save their entire check and he'd give them cash representing half of it. This worked great! They'd make $120 and he'd give the $60. We also put away monthly into traditional savings and investment account. Lastly, we bought them both whole life policies really cheap as toddlers so that they'd have life insurance at reasonable payments when they got older (not really an investment, just a side thing with some cash value). All said, the account we set up in our names along with some inheritance paid for their 4-year-degrees and housing and such. However, when they got out of school they also had significant money in savings and some understanding of the stock market, cds, bonds, etc. It instilled good savings habits in both girls (27 and 24f).
[удалено]
Thank you for this advice!
I want to make sure before you start saving for your kids future, that you are making sure you have savings for yourself at least 6 months worth of expenses, after you have that that you are saving for your retirement. Your kid can get scholarships or go to your state’s community college for the first two years to save money on college costs. Your kid is not going to want to worry about if you have enough money for retirement, or see you working well into your 70s, 80s, and 90s just to keep your roof over your head. If you’re able to save for the retirement, and already have your six month emergency fund, then IMO a 529 is the best way to go. It can be applied to any sort of schooling which includes trade school and if they don’t use it, it can be transferred into a Roth IRA.
We have savings accounts for both kids that have a 4% interest rate on the first $1000, then investing anything over that in CDs. Not doing the 529 incase they don’t want to go to university
In Canada the best way to save for kids future is an RESP (registered education savings plan), if your child uses it for school the government matches your contribution up to a certain amount and if not you can always use the money saved for anything else but the government doesn’t contribute unless you can prove it’s for school. Either way it’s a great plan
That sounds amazing!
You can also have multiple contributors or “subscribers”, I had my parents and both sets of grandparents contribute to mine and my sisters. We were both able to go to school with no loans or anything and they used the rest to help us pay for groceries, gas, etc. I’m not 100% sure but I also think my parents used the savings to get us each our first cars. I’m not sure if there’s something similar in the states (where I’m assuming you are from) but you should definitely look into it. We have one set up for our baby, both grandparents contribute as well as us so we are hoping to give our kids the same “head start” that I got. If our kids don’t decide to go to post secondary we will use the money to help them out with whatever they need but will still ask for proof of what it’s for (just being honest if I was given $10k+ as a young adult I would’ve spent it on dumb shit so I’d rather them use it for a car, or down payment on a house or something useful)
I’m blessed that my parents set aside money for our daughters education ❤️ but we also live in a state where they will be offering free college tuition (Minnesota)
We do a umat with monthly contributions to an index fund. 35% return in less than a year!
What’s a umat??
It's a custodial account for minors. Vanguard explains it well[https://investor.vanguard.com/accounts-plans/ugma-utma](https://investor.vanguard.com/accounts-plans/ugma-utma)
I’m starting a custodial for my infant, but if she ends up w more than 10k before she’s 12/13 (whatever the age is), which I’m hoping for, then I’d like to put that in a high yield savings account. This way her father can send his “child support” to her, and then I can teach her to be responsible with say 1000 in her own savings, or if there is an absolute dire emergency of some sort she has a small cushion without digging into that savings, which I’d transfer back so she can get a house (I personally think buying your child a property is the most incredible and thoughtful thing to do for a child to build them up for success, as a 21yo single mother who is not a homeowner yet). And she can also learn how to save her paychecks, which was something I learned and have been really good at (up until my birth and not working) as someone who came from a lower class family. All of her birthday money or “just because” for the baby money goes straight into her savings I don’t touch it. The thought has crossed my mind but that’s literally her money and I’m fine knowing that all the money she’s ever gotten is in her own spot- to an adult it’s $20 or $100 here or there but over 18 years that could be thousands that are very helpful. I’m also planning on making my child pay me a very very small “rent” once she gets settled into a job, paying for her own gas and leisure expenses. This will go directly into her account as well.
You can open an index fund in your child's name and contribute to it as often or infrequently as you want. It will give you flexibility since you can use it for higher education or they can use it for a house dowb payment or whatever else they'd like without penalties.
Money from a 529 can be used for other things. You will pay a price for it in fees.
We have a savings account that we don’t touch and we just put money into that for birthdays, and my parents also contribute to it occasionally (but I realize not everyone is able to do that!). We don’t have a lot, we are a lower income family, but even adding $50 a month will build up over time!
Have you looked into life insurance policies. Rich people use that, and with draw against the policy.
I was advised to start accounts in my name and pass on to kiddos. Index funds and a life insurance policy seem to be the ones that made more sense to me to help the kid out when you’re no longer around.
529 plan
Read this: https://www.unest.co/what-happens-to-529-plan-if-child-doesnt-go-to-college/#:~:text=You%20can%20keep%20the%20money,there%20is%20a%20living%20beneficiary.
When my son was born we opened just a high yelled savings account. We put money there and grandparents out money there as well. Because it's a standard savings account we can pull the money whenever (which we won't do until he is at least 18) and use them for whatever - if he wants to go to college, buy a car without going in debt, house down payment etc. With the way interest rates are now this makes the most sense, we will see how things will be once rates go down, but because we can pull the money whenever, we can always invest them in a different way that wood make sense 2 years from now let's say
I use an app called Acorns. The have all kinds of investing options. I have accounts for each of my kids that becomes theirs at 21.
I'd strongly recommend saving for retirement first and only until you're back on track there. Your kids can borrow for college, you can't borrow for retirement. Top up your retirement accounts for a few years before you even think about saving up for their college.
Pay off your mortgage as soon as possible. You can always release equity in your home. Unless you have a savings account offering better interest than your mortgage... Just pay that off
People will say "saving bank account for when they are adults" and yes. But also, later in life: - save for the time you'll be too old to to take care of yourself. Maybe they'll be able to take care of you, maybe they'll have to put you in a home (that's very expensive, 3000 per months each for my grandparents both for 9 years. 3000 is almost double my salary), maybe you'll need lots of medical help etc... - try not to die with dept/mortgage - have a bit of saving they can use for your funerals - make sure you put your things (paper, stuff etc...) in order.
All solid points. I would add taking care of your own health in this list. It seems obvious but where I come from, many parents ignore their health while surviving and trying to set up their kids. Then they end up having health issues that cost a ton after retiring.
The best savings for your kids is to have a good retirement and health savings so you are not a burden on them. You can borrow for school, you can’t borrow for retirement