College Funds for Niece and Nephew

Hi everyone,

I really need some advice here.  I have a 3- and 5- year old nephew and niece.  I would like to start saving money for college for them.  Five years ago, I did start a Roth IRA in my name and put some money in it and then stopped.  That now has about $1700 in it.  I now need to really  start putting money in it.  My sister was just diagnosed with breast cancer.  It seems like they caught it early and it will be fine, but it has panicked me and I want to help in any way I can.

As I start to think about restarting the funding, should I continue with putting it in the Roth? Or just in a savings account?  

Some more background on me.  Currently, I put away $200 for my own Roth and save about 14% of my gross in a 403b account.  I'm not maxing out my retirement accounts, but if I wait for that, I'll never be able to put money away for them.

Thanks for any help on this issue.

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  • Why not start a 529 or Education Savings Account? Roths are going to have a lot less flexibility (unless you're hitting retirement age fairly soon) in terms of withdrawing that money without incurring  a penalty.

    529's and ESA's typically have the same kind of investment options as a Roth, but you're allowed to withdraw money for education expenses, often completely tax-free.  Plus, if you already have a Roth IRA for yourself, you might face some limits with how much you can contribute to your college fund Roth, whereas 529's and ESA's have their own contribution limits.  

    There's some good info about both investment vehicles in this blog post: https://www.goodfinancialcents.com/difference-between-esa-education-savings-accounts-vs-529-college-savings-plans/

    Hope that helps! 

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      • Dazed
      • and a little less confused
      • dazed
      • 2 yrs ago
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      Frugalitarian And depending on the state Cyan Transistor lives in, they might be able to get a tax break on contributions made to 529 plans.

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  • I like the way you are thinking.  I also don't have enough income to put enough away for all the things I want to save for.  It's a matter of prioritizing.  I believe a majority of people recommend saving for one goal at a time and that is great for certain goals and  if you can do it.  The thing is with things that don't happen for a decade or more will benefit from small monthly amounts budgeted today, which allows interest to compound and makes a huge difference in the future.  

    I go with a few dollars to many different goals.  With time, I am increasing the amount I fund monthly to the different goals.  It seems each time I ask myself "What do these dollars need to do for me before more money comes in?" helps me choose what is most important each and every time.  I have gone from getting joy from that fast food meal to getting joy when I put that money toward one of my goals.  I have also gone from no savings at all to a few dollars a month to tens of dollars a month, and more.  The more I ask that question, the more my answers change.  Things that were very important yesterday aren't important at all today.  This has been my journey with YNAB.  Hoping you find a balance that feels right to you in your budgeting journey with YNAB.  

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  • Just a reminder. One can take out a loan for education, but cannot take a loan out for retirement. However noble your intentions, make sure you are sufficiently funding your retirement first.

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  • Thanks for all of the help.  Since I'm not sure if they will go to college, I was thinking that putting it in my name would make it easier.  From my understanding, all contributions can be taken out of a Roth with no penalty.  Is that wrong?

     

    Maybe I should just put it in a savings account and when they are in college, can I just pay off some of their tuition?  I wouldn't get any tax help by doing it this way, but it also doesn't tie me up or get into my tax sheltered retirement accounts.

     

    And nolesrule you're right.  I need to be careful of that.  Right now, I will have a pension, social security, and a good chunk of money in the bank, but I shouldn't go too crazy because things could change.

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  • Cyan Transistor said:
    From my understanding, all contributions can be taken out of a Roth with no penalty. Is that wrong?

     This is correct. Although states may have rules on taxing IRA withdrawals that do not align with Federal rules. I know for a fact that is the case with New Jersey.

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