Author Topic: Help me start saving for the kiddos  (Read 2891 times)

BreakingtheCycle

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Help me start saving for the kiddos
« on: November 04, 2014, 07:48:40 PM »
We have no savings plans for the kids yet (ages 6 years, 4 years, and 5 months old).  What do you recommend?  We're currently trying to also pay off a $37K student loan, and then after that start to save for a home (we lost ours in the housing market crash, long story, renting now and have to start over). 

While I want to pay off the debt/save for home, I also don't want to lose time saving for the kids and wake up one day to find them 18 years old with nothing.  Our current goal is to offer to pay for 2 years of community college for each child, or give them the equivalent towards a 4-year school/vocational school/etc.  But we are also thinking if they choose not to go to college, and then eventually get married or a new home or whatever, we'd like to give them that same amount of money as a gift just to help with their future.

If we opened those special college savings funds (I don't know what they're called off the top of my head), would the money absolutely have to be used college or could we cash it out in another way eventually?

GGNoob

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Re: Help me start saving for the kiddos
« Reply #1 on: November 04, 2014, 07:51:13 PM »
No kids here, but remember to take care of yourselves and your retirement first. They can borrow money for school and you can't for retirement.


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BreakingtheCycle

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Re: Help me start saving for the kiddos
« Reply #2 on: November 04, 2014, 07:54:15 PM »
True, but I'm talking even just $5/per month into some sort of account per child, adding more per month for each child as we have more available.  Just some way to start.

momoneymama

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Re: Help me start saving for the kiddos
« Reply #3 on: November 04, 2014, 09:04:27 PM »
I'd recommend looking into a Roth IRA, its more flexible than a 529 and what you don't spend can go towards your retirement.

GGNoob

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Re: Help me start saving for the kiddos
« Reply #4 on: November 05, 2014, 06:46:31 AM »
I'd recommend looking into a Roth IRA, its more flexible than a 529 and what you don't spend can go towards your retirement.

But with a Roth IRA, it must be in her or her husbands name and they can only withdraw the contributions penalty free, which doesn't help if they want it to grow more for their children. Although it does solve the problem of saving for the children vs. saving for retirement.

If you just wanted a normal investment account, Betterment (www.betterment.com) might be an easy way to go. You could open up 1 account and create goals for each of the kids. Then you can easily adjust the allocation for each kid separately based on how many years until they need the money. You can make deposits for as little as $10 and be diversified across up to 12 ETFs. However, when you have less than $10,000 in your account, you'll need to automatically contribute $100 a month or be charged a $3 per month fee. As long as you do $100 a month, the fee is 0.35% of assets on accounts with less than $10k, 0.25% of assets on accounts over $10k but less than $100k, and 0.15% of assets once your balance is over $100k. Keep in mind that with a taxable investment account in your name, you would be the one paying taxes on dividends and capital gains. So at the very least, you'd probably want to keep enough to cover taxes once you finally withdrew to give to your children.

Another possible thing to do with the above money would be to contribute to a Roth IRA in your children's name once they are old enough to start working and earn an income. So if they earned $2,000 with a part time job, you withdraw $2,000 from this investment account and put it in a Roth IRA.

With a Betterment account, you could also create an IRA "goal" for yourself in the same account. So if you are able to, you could contribute to each of the kids' savings while also contributing to a Roth or Traditional IRA.

Otherwise I don't know much about 529 plans, but I believe that if they were to withdraw money from a 529 plan and NOT use it for education, they would have to pay income taxes plus a 10% penalty.
« Last Edit: November 05, 2014, 06:48:52 AM by Logan T »

Dyk

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Re: Help me start saving for the kiddos
« Reply #5 on: November 05, 2014, 07:11:24 AM »
I am with Logan T.  Take care of your student loan, your housing situation, and retirement first.  You need to concentrate and focus as none of these are near as easy with kids (I have 5).

As you state, how do you know if any of your kids will need savings?  I work with some 21 yr. olds that are working part time while going to school.  They will take 5 years vs. 4 to finish school, but they will come out with no student debt and even a start on their savings.  I think they are better off in their thinking than if their parents had provided a large fund allowing them to go off to a 4 year party education.  The future is unknown, and thus should take a back seat for a couple of years.  I am following this right now with my family.  (And both the Coverdell & 529 both have a 10% penalty when not used for education expense, I don't know if there are better options)

My first move for kids will be next summer, my 9 & 10 year olds will start to fund their own Roth IRAs with a reel mower.  Give your oldest another 2-3 years and he/she should be ready!

The great news, read the blog, live it, and you can make amazing progress.  As you kids see you live it, they won't neccessarily need a huge lump sum from you!

La Bibliotecaria Feroz

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Re: Help me start saving for the kiddos
« Reply #6 on: November 05, 2014, 11:03:52 AM »
With a 529 plan, I believe you do run into penalties if the kid foregoes college altogether (as opposed to gets scholarships--I think if they go to college but don't need all the money, you might be able to get it without penalty) BUT you can actually change the beneficiary. You could use the money for another kid or even save it for a future grandchild.

My financial position is similar to yours (but debt-free) and I do not personally save for my kids--my grandfather gives them each a couple thousand a year. I think you are right to want to get a little bit of money in there and start the magic of compound interest. It generally doesn't take a large investment to open a 529 plan and it's not all or nothing--it's better for them to have something, even if it's only enough for the first few classes, than nothing.

BreakingtheCycle

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Re: Help me start saving for the kiddos
« Reply #7 on: November 05, 2014, 11:09:43 AM »
Thanks!  I will look into 529s and Roth IRAs more, and sites like betterment! 

MustacheCash

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Re: Help me start saving for the kiddos
« Reply #8 on: November 05, 2014, 02:23:39 PM »
If I am not mistaken, a 529 plan is also taken into consideration if you apply for federal financial aid.  Also, the educational institution can also set its own rules when it comes to providing financial aid.  The laws and rules are subject to change so I am sure they will be much different in 12-18 years when your kids are ready for college.