Best Savings for Kids?

[farmGirl14]

I'm really stumped on the best way to save for my kids. They are currently 2 & 3 years old.

We have a pretty low income and I put myself through college without help and don't really intend to fund specifically college for my kids. BUT I would like to save some for their futures, college, buying their first car, house down payment, etc. Whatever I feel like would benefit them the most when the time comes. I am unsure at this point if I want them to have full control at 18 or if I would like to be in at least partial charge of the money.

Most of money currently is gifts from grandparents/family and totals less than $1k a year per kid.

Last year I used what money I had for them to buy I-Bonds (in my name) when it was 9% and just have it earmarked for them. I would really prefer to have an specific account of some sort for each of them so there is no confusion on what is whos and I don't have to manually keep track.

I am leery of 529 because I am not sure they are going to college, but I see you can newly roll over $35k to a roth so that may be good option for us now?

I have online savings accounts at Ally that I like and get good rates but they only allow custodial accounts for kids which I'm not sure sure about. My local banks have joint saving/checking accounts for kids but the rates are .5% or less which sucks...

What is everyone else doing? Is 529 still the best option even if they don't decide to go to college? Please help!

[MDM]

Consider the Investment Order in general, and this part in particular: "Similar to "put on your own oxygen mask before assisting others," do consider funding your own retirement before funding 529 plans for children's college costs."

Another way that has been said is "you can borrow for college but not for retirement".

Having savings accounts in the kids' names as a place to put birthday gifts, etc., is a fine idea.  Ten years or so in the future, if they have earned income (soccer ref, etc.) then a custodial Roth IRA for that money could be useful.

Meanwhile, give them lots of lap time while you read to them and otherwise enjoy (when they aren't using crayons on your walls) time with them now!

[farmGirl14]

I guess I should be more clear and say that currently this would just be funds that are gifted from family and friends to my children. We are not putting any money back for our children at this time.

I will do a Roth IRA for them eventually but they are obviously too young for them so trying to figure out what's the best to do with the gift money for now.

[Chris Pascale]

Because I didn't have any extra money, I didn't. The exception was in 2015 when I had a 2nd FT job in a situation you'd read about in the Reddit forum "OverEmployed." While making an extra $3,500 a month, I put $1,000 into a 529 that grew to about $22,000 in 2020, and it got us through a couple years of tuition.

Now, I'm just paying for college as they go.

How do I do it?

1. My income is much higher now
2. I told the kids from a very young age to start at community college, and for years 3 and 4 to go to a state school so the credit transfer isn't an issue.

I currently have 1 in a local state school, and 1 in the community college where I teach (partially reimbursed tuition), who will likely dorm somewhere next year if she doesn't just start working.

ETA: I intend to write my kids a check for their weddings, and since there are 4 of them, it could possibly mean withdrawing from the penalty-free portion of my Roth IRA if they all get married close enough together.

Bottom Line: I don't have a fund of any kind for them. I make good money, am growing my retirement accounts, and am more likely to be mortgage-free because I downsize when my youngest finishes HS in 5 years.

[nereo]

I guess I should be more clear and say that currently this would just be funds that are gifted from family and friends to my children. We are not putting any money back for our children at this time.

I will do a Roth IRA for them eventually but they are obviously too young for them so trying to figure out what's the best to do with the gift money for now.

I commend you for thinking of your children and for keeping monetary gifts for them separate. I also agree with what MDM said above.

For your goals and purposes, a 529 is a fine idea, and grandparents can direct contribute  instead of giving you money to deposit on your childrens behalf. I would not worry too much about “what if they don’t go to college” - the rules ar3 sufficiently flexible that money can be used for a variety of purposes. You’ve already discovered that $35k can be rolled over into a Roth. As custodian you can also change the beneficiary (for example if only one child goes to college you can put both accounts in that child’s name). It can also be used for high school expenses (up to $10k for things like computers or supplies), almost any post high school trade or vocational school (such as a culinary degree, IT training, mechanic degree, etc), and for courses at two-year “community colleges”. It can even be used decades later to take most training courses that provide a degree or certificate, such as if they want to go to a computer programming boot camp.



As you are not talking about very large sums, it should not be hard to find qualified expenses for your children to use those funds for when they are older.

[farmGirl14]

Thank you.

I did end up opening a 529 for each of them in my state because the contributions are a tax deduction. Friends and family can also fund directly in there which will be perfect for birthdays and such.

My husband didn't attend college and so he was iffy about tying the money up but I agree there is enough flexibility that it will be fine. It will likely never be a lot of money but I'm sure the kids will appreciate whatever help we can give them. Time is on their side.

[reeshau]

You don't have to officially put an account in their name.  Just open up another account at Ally, and earmark that for this gift money.

Ally will even let you nickname the account.  We call our emergency fund the "shields," so if we're taking incoming fire, it hits the shields and not our financial hull.

You could call yours by your kids' names, and then can share with them about it when you deem they are old enough.

Of course, with this method the interest income will be yours, and go on your taxes.  But you will have full control.