529 Plans versus Savings Accounts
Shortly after Penny was born, we opened her up a savings account. Any money she receives from birthdays, holidays, grandparents, etc, we stash in her savings account. She’s got a nice little nest egg that hopefully we’ll be able to help her grow over the years. Now that we finally got our IRAs opened with Vanguard and we’ve been really happy, I’m considering opening up a 529 plan for Penny with them. I have some hesitations, and I definitely need to do more research but it’s something that probably would be a really good idea.
A 529 Plan would allow us to save money for her college education while receiving tax advantages. The downside is if she decides not to go to college we’d be subject to income tax plus a 10% penalty. Ouch.
One of the biggest concerns I have about opening a 529 plan is if Penny decides college is not for her and the money will be taxed and penalized. Of course we would love for Penny to attend college and become something she would love, but if it’s not in the cards for her then I hate to lose the money.
A lot of states have programs where the money has to be used at an in-state school, and being that Mr. Money is from Colorado and I am from Michigan, you never know where we may end up. We think about moving closer to family a lot, and I can’t guarantee that we will stay here when Penny is old enough to attend college.
It’s hard for me to commit to things so I think we’re going to just keep her money in a basic savings account for right now and maybe as it grows re-evaluate. I don’t like taking risks with money generally, so this will probably be the best option for us right now. I guess we will just wait and see how it goes.
How do you save money for your children if you have them?