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Permalink Reply by James Scott on March 9, 2008 at 12:21pm

I've always wondered what happens if your son decides not to go to college? Are you able to use the money for something else? And if the money can only be used for educational purposes, how many evening classes does a person really want to take while trying to spend the unused money in the educational accounts?

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Permalink Reply by kimber on March 9, 2008 at 4:46pm

hmm... true -- he may choose a different path in life. i should investigate whether or not the money can be used for early education or if it is only for continuing education (post-high school). i suppose most people use it for college since it is the most expensive, but i would imagine that any education expense could be covered with a 529. and if i ended up with extra money in the account, i wonder if i could "gift" it to someone else. i'll look into this more and post any useful information i find. thanks!

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Permalink Reply by kimber on March 9, 2008 at 5:36pm

So far, this is what I've found qualifies for use of money in my state's 529 plan: "Qualified Higher Education Expenses
These expenses include tuition, fees, and the costs of books, supplies, and equipment required for the enrollment or attendance of a designated beneficiary at any eligible college, university, vocational school, or other post-secondary institution. Certain room and board expenses are also included as long as the beneficiary is enrolled at least half-time. If the beneficiary lives in housing operated by the educational institution, the cost cannot exceed what is normally assessed for most of its residents. The limit for annual room and board expenses covers the allowance included in the "cost of attendance" at the eligible educational institution or, if greater, the actual amount charged by the institution for room and board costs for the applicable period."

So it appears this money can't be used for early education, which is too bad. I suppose instead of investing in the 529 plan and risking it not getting used, I will probably just use some other type of investment (mutual fund, savings account, etc). Please let me know if you have any other ideas/strategies for saving money for college. I'm hoping to earn a higher interest rate than just my basic savings account offers, but I also don't want to tie up my money in a CD or other non-liquid sort of account. Additionally, I don't want to do anything high-maintenance, like day trading stocks, etc. Thanks for any input!

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Permalink Reply by paul on March 9, 2008 at 10:25pm

In addition to choosing the military or some other non-college endeavor after high school, we also can think of something very positive such as your son getting a full scholarship to a great university. The money could still be used for housing, books, and expenses, but this would make the costs different from someone who is saving for an expensive school at the rate of $20,000 per year or more. This is a good discussion because it is hard to plan for such a huge expense that may or may not come into play.

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Permalink Reply by James Scott on April 10, 2008 at 4:20pm

good work with the positive thinking paul : )

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Permalink Reply by paul on May 16, 2008 at 12:15pm

I got my stimulus money the other day. Since George W. Bush is basically borrowing all of this money and adding it to the national debt, I figure I should put some of the stimulus money into a college savings fund for my son since his generation will be broke while paying for all the debt Bush has been racking up.

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Permalink Reply by kimber on June 12, 2008 at 11:31pm

After more research on this topic, here is what I've found: There are 3 primary ways to save for higher education.
1. savings account in your child's name
2. Coverdell Education Savings Account (ESA)
3. taxable investment account (a 529 plan)

The option that seems like the best deal is the 529. These investment accounts are tax-deferred and so long as the money is used solely for higher education, you will never need to pay federal income tax on withdrawals from the account. Another benefit is that most plans of this type have no restrictions on where the account owner or beneficiary lives. Therefore, you can invest in pretty much any state's plan, and your child can pretty much go to school anywhere. It is also easy to qualify for a 529 account because there are no eligibility restrictions! And you can invest up to $300,000 per year (yeah, right -- in my dreams). (By comparison, a Coverdell ESA caps contributions at $2000/year.) Anyone can add money to your child's 529 account, and can do so without having to pay any gift tax, up to $12,000/year. However, there is a regular maintenance fee for these accounts, and any withdrawals made in order to cover non-educational purchases will come with a 10% penalty as well as a need to pay income tax.

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Permalink Reply by kimber on June 12, 2008 at 11:33pm

Maybe I'll push my son to attend a university in Sweden, where tuition is free for anyone admitted. :)

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Permalink Reply by paul on June 14, 2008 at 6:20pm

Thanks for the info Kimber, this was very helpful

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