Tag Archives: grad school

Investing in a 529 Plan for My Non Existent Children

So I’m looking for creative investment ideas once I max out my Roth IRA for the year. One option is a SEP IRA or a Keogh Plan, but I don’t really want to save that much for retirement right now. I’m in my 20s and yes, it’s important to put away a lot of money for retirement but I feel like on my salary $5000 a year is enough. (Maybe I’m wrong, but regardless, that’s my current thought.)

The stock market, as we all know, is a giant toilet bowl right now, and it feels like putting money in it is just as bad as walking into a Vegas casino and flushing your money away. The hope is that it will go up over the long term. And it probably will, though no one can say what the rate of return will be, of course.

Besides starting an HSA Plan (which I should do, like, yesterday — but figuring that out is a whole other blog post-o-fun), I’m thinking that it might be a good time to start saving for my kid’s college education.

What kids, you say?

OK, so I don’t actually have any kids yet. I don’t plan on having kids until I’m 30, and that’s 6 years away.

But college prices are so expensive… and if I have kids at 30, they’ll be going to college when I’m 48 (wow, I can’t even imagine being 48). Anyway, that’s 28 years from now. Putting money away now to compound for that long will probably eek out a nice return, especially if I invest in some basic Vanguard index funds.

I’m also considering going to grad school at some point. So I’d start a 529 Plan in my name and if it turns out I never go to grad school, I’ll put the money towards my kid’s plans when I have kids. If I don’t have kids, well, then I’ll just give the money to my sister’s kids. If she doesn’t have kids, I’ll give it to my cousin’s kids. I’m sure someone in my family can use it!

Does this seem like a silly idea? I’m trying to find out more about 529 Plans.

The government site explains them a bit…

http://www.sec.gov/investor/pubs/intro529.htm

There are fees and expenses associated with 529 plans, and I won’t jump into the investment without fully understanding them. Right now it all seems like a bunch of jumbled numbers to me.

Some interesting points from the gov site…

“Under current tax law, an account holder is only permitted to change his or her investment option one time per year.”

“While each educational institution may treat assets held in a 529 plan differently, investing in a 529 plan will generally reduce a student’s eligibility to participate in need-based financial aid.”

“Before you start saving specifically for college, you should consider your overall financial situation. Instead of saving for college, you may want to focus on other financial goals like buying a home, saving for retirement, or paying off high interest credit card bills. Remember that you may face penalties or lose benefits if you do not use the money in a 529 account for higher education expenses. If you decide that saving specifically for college is right for you, then the next step is to determine whether investing in a 529 plan is your best college saving option. Investing in a 529 plan is only one of several ways to save for college. Other tax-advantaged ways to save for college include Coverdell education savings accounts, Uniform Gifts to Minors Act (“UGMA”) accounts, Uniform Transfers to Minors Act (“UTMA”) accounts, tax-exempt municipal securities, and savings bonds. Saving for college in a taxable account is another option.”

Plenty to think about. I really should be saving for a house. But it just seems like it couldn’t hurt to start saving for grad school and/or my kid’s college education. Right?