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saving up for my daughters college?

My daughter is 7 months old, my mother in law wants to invest in something for my daughter to have college money when she is older. She was thinking of investing in stocks but I think that is too risky, then she wanted to do a bond but found out if she put in 500 it would only be a thousand by the time my daughter is 21. So I was thinking maybe the Gerber program but it says she wont get the money till she is 25. So does anyone know a good way to set up money so that it gains a lot of interest in 20 years but we won't lose any money?

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gottalovemal

Asked by gottalovemal at 5:39 PM on Apr. 10, 2010 in Money & Work

Level 17 (3,311 Credits)
Answers (12)
  • Do not put it in your daughter's name. Anything you have in your child's name will count heavily against her when (if) she goes to apply for FAFSA (if that's still around when she is older)
    Anonymous

    Answer by Anonymous at 5:43 PM on Apr. 10, 2010

  • Pre paid college funds do not earn any interest but what they do is freeze tuition at the time when you buy, by the time your 7 month old is ready tuition will skyrocket. Even if you don't use it you will get your money back.
    older

    Answer by older at 5:45 PM on Apr. 10, 2010

  • Government Bonds is probably the best way to earn the most interest- virtually risk free. But you're not earning a lot of interest on it. Basically just keeping a little ahead of inflation. Keep in mind that college tuition is going up an average of 7 to 8% a year, so you probably want to keep up with that.

    If it were my kid, I would suggest mutual funds. They aren't risk free, but you buy in to hundreds, even thousands of different stocks, so if one stock fails- it doesn't really matter since you're spread out over so many.

    You can also look into starting a Education Savings Account (ESA) and then putting that money into a mutual fund. I think you'll have to put a minimum of $500 for most mutual funds though. So that's something to look into.;

    Talk to an investment adviser and (s)he will be able to explain the risks of different investments.
    GOOD LUCK :)
    Anonymous

    Answer by Anonymous at 5:47 PM on Apr. 10, 2010

  • OLDER that's not true. If you don't use the money for qualified education expenses, then the money is subject to a 10% penalty plus your tax bracket- so it could be as much as 40% in some cases. Of course there is also the opportunity to pass the money on to another sibling, I think maybe even a cousin too? But you bank on your kid wanting to attend a college in that state and it is very likely that (s)he won't want to.
    Anonymous

    Answer by Anonymous at 5:53 PM on Apr. 10, 2010

  • OLDER that's not true. If you don't use the money for qualified education expenses, then the money is subject to a 10% penalty plus your tax bracket- so it could be as much as 40% in some cases. Of course there is also the opportunity to pass the money on to another sibling, I think maybe even a cousin too? But you bank on your kid wanting to attend a college in that state and it is very likely that (s)he won't want to.
    Anonymous

    Answer by Anonymous at 5:54 PM on Apr. 10, 2010

  • The "specialized IRA" for education, is the Education Savings Account (ESA). It is nicknamed the Education IRA, but it isn't - obviously, an IRA since an IRA stands for an Individual retirement account. It works the same way as an IRA does in the sense that the money is grown tax deferred, and continues to be tax deferred as long as you use the money for education expenses.

    Here's a good link on that
    http://en.wikipedia.org/wiki/Coverdell_Education_Savings_Account
    Anonymous

    Answer by Anonymous at 6:08 PM on Apr. 10, 2010

  • anon 5:53, this prepaid program is in Fla, all states have different programs, here, you get your money back if it is not used, there are no fees unless you take it out before its maturity, and they earn no interest, but the money you will save will probably be more than interest would be. I have bought this for my son, he didn't need it because he got a full scholarship, hun, I got all my money back.
    older

    Answer by older at 8:11 PM on Apr. 10, 2010

  • Get a savings account and put money in it. I wouldn't do a prepaid college thing. I live in FL and they are having problems with giving the money to the students. These states spend the money then plan on paying the child when he/she grows up but the economy is such that they can't pay back the money you paid in for your child's education. Just put it in the bank.
    Anonymous

    Answer by Anonymous at 8:30 PM on Apr. 10, 2010

  • Our pre-paid is like the one Older discussed (its from VA)- you can cash it out if you do not use it and since it is not a tax free investment in the first place-you do not pay a penalty on it. Each state is different. I have a pre-paid for both of my boys. A few years back when the market was HOT it seemed like a bad investment, but here lately with the stock market lower and the cost of tuition rising rapidly, it seems like genius! You have no idea what conditions will be like when your child needs the money-that is why I like the idea of the pre-paid programs. Then again, I am not a risky investor type so it suits me well. I think its great you are thinking so far out-you can not go wrong with planning something-its better than nothing!
    soyousay

    Answer by soyousay at 8:43 PM on Apr. 10, 2010

  • I agree, get a savings account (in the grandparents name preferably) and everyone can contribute money to the account. You, grandparents, etc. It wont accur a whole lot of interest, but better than losing it in stocks.
    Anonymous

    Answer by Anonymous at 8:44 PM on Apr. 10, 2010

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