if any, for your kid(s)’s education & life is a personal decision. There is no simple answer. I don’t recommend doing any of these if your finances are not in order. Remember, there is no such thing as a loan for retirement. My 1 year old already has 3 accounts and about to open a 4th. Why? To take full advantage of time and compound interest of course. Here they are in order of when we opened them.
1. 529 College Fund
529s are the king of college savings accounts. You contribute after-tax money in, it grows tax free, and you don’t pay taxes on withdrawal. You may even get a state tax deduction for your contribution. You can also open one before your child is born! So if you know you’re going to have children and get a decent state tax break like I did when I was living in NYC, it’s not bad a idea to get one going. Where should you open one? Start with your own state’s plan. If you get a state tax break you’ll want to find out if you’re limited to using your state’s plan to qualify for a deduction or not. A few states, including my now home state of PA, allow you to use any state’s plan. So, I’ve kept mine with NY which currently offers the lowest fee Vanguard funds. We currently invest it all in the Aggressive Growth Portfolio which consists of 70% Total Stock Market Index Fund and 30% Total International Stock Index Fund. If your state offers no tax deduction then I recommend NY, Utah, or Nevada’s plan. Pick Nevada if you already invest in Vanguard and want to keep things clean. Don’t overthink it, just pick one. And – make sure you select the direct plan and not the plan via a financial advisor which are loaded with extra fees. There is a penalty if you withdraw money for non-educational purposes. Because of this I recommend saving something like 70% in a 529 and the rest in either a UGMA/UTMA or your regular brokerage (aka taxable account). There is a special rule allowing parents to frontload 529s above the gift tax limits. You may frontload 5 years worth (5 x $15,000 or $30,000 = $75,000 or $150,000). For those that can swing this, this is a great way to get that money growing for college.2. UGMA (Uniform Gifts to Minors Act)
UGMA & UTMA are basically savings and/or investing accounts for your children. You own the account as a custodian until junior reaches the age of majority. This age is state dependent but usually ranges from ages 18-21. Once they reach this age the account belongs to them and you lose control. Since this is an asset your child owns it will be counted for college financial aid calculations. The money can be used for anything. On the flip side, interest, dividends & capital gains are taxed. The taxation recently changed with the new 2018 Tax Law and will be taxed like trusts (15% & 20% tax above $2,600 & $12,700 respectively). Previously, the first $2,100 of unearned income (interest, dividends & capital gains ) was not taxed.3. Coverdell ESA
Huh? That’s the usual response I hear when I recommend this account for children. I already discussed how great ESAs and how you can fund one despite being over the income limit (kind of like the backdoor Roth IRA). You can only contribute $2,000 a year but over time (and compound interest) you can have a sizeable chunk of cash to use for either private school and college. Although there is a new ruling allowing up to $10,000 per year withdrawals from a 529 account for K-12, not all states have adopted this. I also don’t recommend doing this unless 1) you get a nice state income tax deduction (like NY) and/or 2) you frontload your 529 at or near birth. Otherwise the money just won’t have much time to grow if you keep withdrawing money from it. Unlike the 529 plan, you cannot open one before your child is born.4. Roth IRA
[caption id="attachment_2545" align="alignleft" width="351"]

Sign up to learn the 5 Money Myths Keeping You From True Wealth — so you'll never fall for them again.
