Kid Money: 529s, Savings Accounts, and More

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2021 Update: We stand by these 529 tips (and general discussion on saving for kids!) — but you may also want to check out our more recent discussion on choosing a 529 account.

Ladies, have you opened a 529 savings account for your child yet — or did you opt for a savings account or investment account? What are your best 529 tips and thoughts on savings accounts for kids? In general, what do you do with the monetary gifts your children receive from relatives? Do you set aside any non-tax advantaged money regularly for your children — or have you prioritized non-tax advantaged savings for yourself above tax-advantaged savings for college? 

For my $.02, we have a 529 account for each son, but neither has any other kind of savings account. When J was born, I did my best to learn from the mistakes of my 20s, when I sat on money because I didn’t really appreciate the power of compound interest, and always felt like I didn’t “know enough” to invest. So after he was born, I gave myself explicit permission to not know a lot about 529s — I didn’t research which 529 too much (I chose New York State because you can deduct 529 contributions from your income, up to a $10K max per year per couple), and I didn’t research which funds too much (Aggressive! Done.) We set up an automatic contribution from one of our savings accounts — it was all very easy to do online.

Our automatic contribution wasn’t huge — it wouldn’t even get us close to the max — but it did represent two decisions. First, it represented a desire to put ANYTHING in there — I really believed then (and now) that whatever we can do, even if it was only $20 a month, would make a difference because of compound interest. Second, it represented a priority shift. I read an interesting article a while ago that tax-advantaged savings was the thing to focus on — so the 529 accounts rank below our 401Ks and IRAs, but above other, non-tax advantaged savings. In fact, the amount we choose to go into his 529 account monthly was the exact amount that we had been investing automatically beyond our retirement accounts.

I will also say that all money that J receives as a gift (from family members, birth gifts from colleagues, etc) goes into his 529 account — I haven’t even set up a savings account. My reasoning here is that, well, he’s not yet 4, so he doesn’t actually NEED the money, and won’t for many years — it would be better served in not just an interest-bearing account, but in the stock market. Our 529 accounts had a minimum of something like $25 for the opening contribution — whereas last I looked, most Vanguard funds have a minimum of $3,000 for investment. A friend of mine has commented that he thought that this might be a “moral issue” — because I am taking my child’s gifts to use for tax deduction purposes — but I disagree with that assessment since, after all, my kids are getting every cent intended for them. (Ladies, what are your thoughts?)

When H was born it was a bit of a question for how to divide the contribution — J had had almost 3 years of getting 100% of whatever we could contribute to his 529, whereas H would only get that benefit at the END of his 529 career, when J will be (presumably) off at college. Again — with hopes that the interest would make a difference — we eventually did decide that H gets 2/3 of the amount we’re contributing. After a few years we’ll even it out to a 50/50 split, I suspect.

Over to you, ladies — have you opened a 529 account? Did you shop around and decide to contribute to a plan in a state other than your own? Did you also open a savings account (or investment account) for your child?

Further reading:

• Tools & Calculators [Saving for College]
• This Is the Best Way to Save for College. And Hardly Anyone Uses It. [Washington Post]
• Read This Before You Start a 529 College Savings Plan [Motley Fool]
• Learn the Do’s and Don’ts of Choosing an Out-of-State College Savings Plan [U.S. News & World Report]
• Compare Credit Cards That Offer College Savings Rewards [U.S. News & World Report]
• 7 Reasons You Might NOT Want To Contribute To Your State’s 529 Plan [Forbes]

Picture credit: Fotolia / denisismagilov. All other stock money images via Stencil. Originally pictured (2015): Kate Spade New York ‘Cedar Street – Clouds Lacey’ Zip Wallet, on sale at Nordstrom for $98 (was $198).