Account for New Born

[crazysimi]

We are having a baby end of October and my parents and others asked if we have an account set up so they can give money, assuming college. They would like something like a 529 plan so they can get the tax write offs, but is there other type of accounts I can open for her that they can still add yearly and get the benifits. Only reason I'm hesistant on the 529 is what if she doesn't want to go to college and you lose 10% right off the bat

[jnm2.0t]

Question: are you fully prepared in all other aspects of your financial life - retirement being fully funded, all proper insurances in place, emergency fund fully funded, no debt, etc.? If the answer is no then skip the 529.

[crazysimi]

I have retirement fully funded and all insurances in place, small debt, but I'm not opening this account for me to be putting money in, This would be only for grandparents to contribute to and want the tax benifits of that

[jnm2.0t]

They would like something like a 529 plan so they can get the tax write offs

This would be only for grandparents to contribute to and want the tax benifits of that

There is no federal tax write off on contributions, states vary. WI gives you up to $3k of deductions from what I see poking around online, at your top tax bracket thats $202 tax savings. If they are out of state I don't know if they could claim it. $200 doesn't seem like a reason to specifically want a 529.

[crazysimi]

yes they are in wi too, they do this for all the grand kids, so 3k x5 a year it would be, I'm just looking if there is any other types of accounts like this that I could set up that isn't so tied down with restrictions and their happy with their write off

[eluwak]

We just setup a savings account for each at our CU. I'm sure we could get a better return doing a million other things, but we like the ability to access it unrestricted if needed. We chuck $10/week into each and if anyone sends them money as a gift they have to put half in there before they spend any.

[jnm2.0t]

yes they are in wi too, they do this for all the grand kids, so 3k x5 a year it would be, I'm just looking if there is any other types of accounts like this that I could set up that isn't so tied down with restrictions and their happy with their write off

The tie down is what gives you the tax shelter on annual growth which is more important, that also comes with the penalties and taxes on growth if not used for the intended purpose though which can be significant. If you want the freedom of using the money as needed and investing in whatever you want, not just the 11 options in your 529, then don't use a 529 but you also won't get the tax advantages.

[Vision33r]

We are having a baby end of October and my parents and others asked if we have an account set up so they can give money, assuming college. They would like something like a 529 plan so they can get the tax write offs, but is there other type of accounts I can open for her that they can still add yearly and get the benifits. Only reason I'm hesistant on the 529 is what if she doesn't want to go to college and you lose 10% right off the bat

I'm in the camp that says make your kids earn for that 100% scholarship. What good is a 529 plan when all kids do today is smoke pot on campus.

[TT for me]

Fund it and the kids will go to college.

[AJB]

Herein NJ, the benefit to a 529 account is that the interest earned is non-taxable if used for education. So If I setup one for my kid when they are born, and 18 years later they want to goto college and the account has made 30k I don't have to pay taxes on the money earned as I would have to do by just leaving it in a bank account for all those year or some other investment.

The two negative items:

1. The account could lose value when I need it most (IE: anyone who was retiring in 2008 and saw their 401k tank)

2. I have restrictions on how I can use the money

[jnm2.0t]

As the need for money nears you become more and more conservative with the investments. That may include keeping next years tuition in cash in the plan.

[scandalous_cynce]

Anyone can open a 529 account. The grandparents can open it up for your child - you don't have the be the middle man.

[tall tex]

With the 529, you will have to have a SSN for the kid in order to open the account. Anyone can be the custodian of the account, but you can only have one account per SSN beneficiary. So be sure that you don't want to have that control yourself before the grandparents open the account. Don't want to be a downer, but what if the grandparents aren't around by college - try to avoid the mess of death certificates and deligation of custodianship.

Shop around on the 529s, some have better rules than others. Of course check with your 401k holder, insurance companies, and banks. For me, the best was USAA. I applaud your decisions to start saving now, no matter how small the quantities seem to begin with.

[beng]

529 is a nice way to start saving for a newborn. If you prefer a cahs nest egg that is not education related. ...the strategy will be trickier do to tax consequences.

Congrats on becoming a parent!

[blue70beetle]

If you raise your kid(s) with the underlying assumption that they are going to college, it's unlikely that they would decide not to go. In 18 years there isn't going to be a significant pool of reasonably good jobs that don't require at least some type of degree anyway, so unless there are extenuating circumstances that prevent it (such as a severe learning disability or mental handicap), there isn't really any reason not to steer them towards college.