Question about how to save for College?

Question

We have a 13 year old son, and we want to start saving something as he will be entering college in 5 years...what is the best way to go about it this late in the game, what is the best investment for my money....I have less than 100.00 a month to invest a month...Any expert advice would be appreciated.

Answer 1

Although 5 years should be enough time for the stock market to turn around, it may not be worth gambling.  The bond market is usually considered the next step down, but there are different and usually underestimated risks to that as well.  I would personally suggest that you go to your bank and talk to them about the different CDs (Certificate of Deposits) which can yield approximately 5-6% per year.  It is basically a bank account but those funds are essentially frozen for that year if you are unfamiliar.

I am 18, and my parents kept a CD to save up for my college labtop, and I'll tell you where the rest of it was later.  Although 5-6% per year is not going to mean the difference between community college and Harvard and college costs are rising at nearly this rate, it is at almost no risk to your money (bank going out of business is only far-reaching concern).  With this strategy, you will keep up with rising college expenses, be able to manage your money with consistent expectancies, and never have to explain to your son why your stock went down or bonds defaulted.

Note: another strategy would be for Treasury bonds or Money Market accounts, but they scarcely beat inflation if at all (generally 3%) and CDs are a far better investment.

Even if this strategy causes you to be a little short, student loans will be kept in check.  In my opinion, college savings should have no risk involved, and this is your best option.

My father lost all mine in the real estate crash, and I'm going through on student loans alone.  If you take on riskier investments, don't make mistakes.

Best of luck to your family.

- Kevin

Answer 2

At $100/mo. with only 5 years to go, you aren't going to get very far, but at least you will be $6,000 closer than if you did nothing.  You really do not have enough time to invest in the market as it may not turn around by the time you need it.  Do NOT put the money in your son's name (UGMA, UTMA, etc.) because you are less likely to qualify for finacial aid if the money is in your son's name than if it's in your's.  With only 5 years, you need to be safe.  Unfortunately, the only way to do that is I bonds, zero coupon bonds or high quality municipal bonds.

Answer 3

You should set up a 529 plan.  Most mutual fund companies and stock brokers can help you out with this.  529 plans are tax free savings plans for college expenses.  All states have their own 529 plans which may or may not be good.  If you are in a state plan you can also save on your state taxes in addition to your federal taxes.  5 years is not a long time so what ever you decide it should be a somewhat conservative investment plan.  

Here is a link to the T Rowe Price plan.

http://www.price529.com/price529enrollba...