Investments for the Girls

To this point, I have focused on what my wife and I are doing to secure our financial future. Since our first child was born in 2005, I have dedicated time trying to find safe yet lucrative investments for the kids, with an eye on college in about 20 years.

With the few hundred dollars in cash they both received upon being born, I opened up savings accounts at Ing, where they would each get a $25 bonus (and I would get $10!) These have become their main accounts, where cash gifts usually go first.

With some searching, you will find savings accounts geared towards children. A couple of the best ones I've found include the Kids Only Savings Account at Affinity Bank. This bank account pays a whopping 10%, but only on the first $500 you deposit. Even so, an investment of $500 at birth will triple by the time your child is college age. It was tought to pass up so both my girls have one. The stipulation "Available to California residents only" has just been added and may be worked around.

Another great offer, although targeted to residents or family of residents in Washington state, is the Early Saver Account from BECU. This account, which I have not opened (but may because we have family in Seattle), pays a nice 7.5% APY on deposits up to $500 for children under 18. Balances over $500 earn their normal savings rate of 1.75%.

There are other special rates out there like this. However, like the two above, they are usually targeted to specific locations. Check your local credit unions. They may offer unadvertised special rates for children who open savings accounts with them.

Of course, no conversation about investment vehicles for children would be complete without mentioning 529 College Savings Plans. From the most comprehensive website on this topic, Savingforcollege.com, a 529 plan is "an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. As long as the plan satisfies a few basic requirements, the federal tax law provides special tax benefits to you, the plan participant (Section 529 of the Internal Revenue Code)." Please research the Savingforcollege.com website for the specific requirements and benefits of this kind of plan.

Every state has their own plan, but be careful - some states charge pretty high fees to manage your account. Do some research to make sure you make the right choice. Personally, it was an easy decision. The New York State plan is highly respected, both for its low fees and its affiliation with Upromise and Vanguard. I am able to invest $25 a month into both of the girls' accounts. In addition to the money I put in, Upromise deposits money quarterly to give the account a little boost, $450 so far since 2003. Another positive about contributing to a 529, especially in NY, is the state tax deduction you receive. Contributing $25 per month is not going to pay for an Ivy League education in 18 years. My plan, though, is to increase the contributions as the girls get older and my long term goal is to be able to pay for half of their education, not all of it.

There are other things parents can do to help pay for their children's education and financial future. One that I like but haven't opened is a Coverdell Savings Account (CSA). The maximim yearly contribution is $2K per year, but what makes it different is that it can be used for any education related expense, not just for college. Textbooks, SAT prep courses, and private high school tuition are all examples of how a CSA can be used. When I realized I was having two girls (with no more children coming, trust me) a Coverdell became a less-appealing option. The reason is that if I had a boy, I would want him to go to my alma mater, a very expensive Jesuit high school. With two girls, though, this isn't an option and I'm fine with that!