Quote:
Originally Posted by pw2006
I live in CA and have 2 little ones (2 and 5). I set up 529s out of Utah when they were born (Utah has one of the lowest fee structures and there are no tax benefits using a CA 529). There are some limitations and/or penalties with 529s if the funds are not used and/or withdrawn (like if you overfunded the acct, kid decides not to go to college, life throws you a major curveball and you end up needing those funds due to illness, etc). You can roll any unused funds over to another family, but frankly, I am setting this bucket up for my kids' education. I am currently targeting a balance of ~$100k for each when they are 18. However, $25k per year may not be enough to cover an education when they are ready. So, I am supplementing the 529s with CA muni bond ladders. Personally, I would rather be underfunded in the 529 and have the flexibility of the bond ladder if needed. Just my 2 cents.
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Good info but you'll be far better off if you buy some good dividend paying stocks and choose to re-invest the dividend. That way you "SHOULD" have capital growth and collect the dividend.
A school "savings account" like this really needs the growth component to it to help you get there... bonds don't "grow" but are bought for SAFETY. You also don't need the tax free status of the bonds. That is just giving you a lower return and you need a higher return - COMPOUNDED - to also help you get there. So just using McDonalds stock as a well known example -- whatever you'd have put away 5 years ago -- would be MORE THAN DOUBLE what you put away.... already! Where as your bond would still be the exact same value (if you're holding to maturity). If you're not "comfortable" with all stocks - then do half and half....
Put the account in the childs name with you as joint owner -- that way the dividends are taxed at THEIR rate which can be ZERO.