What are some better college investment fund options?

Question

We're expecting our first child soon (this week hopefully) and we're pretty clueless about investments and all things money related. We're good at saving, but would like to invest in SOMETHING for college for our coming child. Does anyone know some good college investment options? We don't have tons of money (I'm a teacher - not working now though because of arriving baby) and my husband is a scientist... so not loads of money, but we're not big spenders and are good at saving. Any ideas? Thanks! :-)

PS - we WILL speak to a financial advisor also - just looking for ideas from more experienced people! :-)

Answer 1

If you are saving for college expenses, you should  take advantage of federal tax breaks aimed at families saving and paying for college. These include the following:  



Qualified Tuition Programs (529 plans)—Earnings grow tax-deferred and distributions are tax-free when used for qualified post-secondary education costs.



Coverdell Education Savings Accounts— Earnings grow tax-deferred and distributions are tax-free when used for qualified post-secondary education costs. May also be withdrawn tax-free for primary and secondary school expenses.



However, don't invest more in these than you child will need for college.  There are tax penalties for non-educational withdrawals.  Additional funds should be invested in a UGMA or UTMA.



For more information read this link, where most of this information comes from:



http://www.savingforcollege.com/



I may also add that you should also be putting the maximum away for your own retirement now in 401k's and IRA's, before saving money for your child.  If you max out your retirement investments now, you can put in less later on,  and have more money to donate to your child then.  Also if it turns out your child is not college material, you won't have to pay the withdrawal penalties from a 529.  Your child can always borrow money to fund her college, you can't borrow money to fund your retirement.  Get your retirement squared away first; the last thing your child wants to do is have to support you in your old age, because you didn't plan ahead.

Answer 2

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Answer 3

I would recommend that you setup a Coverdell Education Savings Account.  Formerly known as an Education IRA, a Coverdell ESA is a tax-deferred trust account that helps families fund educational expenses.

You can setup a Coverdell ESA at a brokerage firm.  I currently use Firstrade ( http://www.firstrade.com/ ).  I've been using them for years now and have had no problems at all.  I don't have a Coverdell ESA with them, but I do know they offer it.  You can read more about it here: http://www.firstrade.com/public/en_us/re...

Firstrade currently has a refer-a-friend program, so if you're interested in opening account with them, email me for a referral code. It's a win-win situation because you'll get your first 5 trades free.