What is the best way to save money for my 4 yr. olds college education and future?

I started him a Education 529C but to my understanding he can only use that for college. I would like to have a few more ways to save money for him in case he wants to buy a home or start a business instead of go to college. I don't make alot of money but I can spare approximately $100-150/ month. I want to start something for him that gives a good return on my investement. Any ideas?|||Hello. There are a number of solutions, every single one of them with some type of drawback.





The basic problem is that back in the 1930s someone decided to prevent the rest of us from competing with the banks (including and especially the investment banks) as a source of capital by preventing us from accumulating capital over multiple generations. There are several laws to prevent this:





* "Kiddie tax" on minors, NOW UP TO AGE 18!!


* Gift tax


* Estate tax (charged to the estate, not to be confused with inheritance tax which some states charge to the heir IN ADDITION TO the charges to the estate!)


* Generation Skipping Transfer Tax (GSTT)





Due to the amounts of money you are talking about, you will fall under the radar for most of these except for the kiddie tax, but you should know about the other taxes too.





Anything I suggest will be hit by one or more of these as soon as certain threasholds are hit. Talk to an appropriate investment advisor to make sure you understand the tax consequences of any particular strategy.





Probably the most simple to understand is the UTMA/UGMA. This is a custodial account. It is technically an irrevokable account, HOWEVER, you must NOT die before your child turns 18 or it will be taxed to your estate. Plan accordingly. One possibility is to use a trusted grandparent (aunt, uncle...) as the custodian; this will keep it out of your estate (as well as the grandparent's since the grandparent is not the grantor). It is unfortunately subject to the kiddie tax. You can contribute to the account in amounts that will fall under the annual exclusion (currently around $12K per year I think) to avoid gift tax.





There are 3503(b) and 2503(c) trusts. I won't go into them too much because any income from the trusts distributed to the child are hit by the kiddie tax, and any income not distributed by the c trust is hit by trust tax rates, which are high.





A Crummy trust is one in which the child has the right to receive distributions (that right is normally allowed to lapse, under threat of not putting any more money into it). This right creates "constructive receipt" which means that it's not taxed to you nor does it end up in your estate.





Interest on US EE savings bonds are not taxable if used for education, but I will not recommend them because the interest they pay is negligible compared to inflation. They can be called "certificates of guaranteed confiscation" like Federal bonds used to be.





UTMAs/UGMAs are getting rare because of the kiddie tax thing, but it is probably the best solution to your problem. Trusts are expensive to set up. Here is how to minimize the tax consequences:





* Try to arrange for a grandparent or aunt or uncle to be the custodian. This needs to be someone who is financially sophisticated as well as honest, as this person will have control over the account. If this is impossible, don't die before the kid turns 18.





* Think VERY carefully about investments, and pick something that will appreciate over a long period of time, so as to minimize taxable transactions. Favor long-term capital appreciation over current income, except in the case of "qualified dividends" which are currently taxed at a modest 15%. Beware of "growth funds" as they are usually full of risky stuff that does not necessarily "grow" (sometimes it shrinks). You might consider a balance between dividend-paying blue chip stocks, investment-grade bonds (**these will generate income-taxable interest, beware**), and something that is a hedge against inflation such as GLD (Streetracks gold-tracking fund) at around 10% of the portfolio. Rebalance the portfolio at regular intervals that are at least 1 year and 1 day apart; the time lag is to avoid short-term capital gains. Keep track of all of your purchase prices (including any dividend reinvestments) for income tax purposes.





Information provided was current at the time it was offered. Laws change and are more complex than I can describe them here. Consult with qualified tax and legal counsel.





This answer is for informational purposes only and does not constitute advice to buy or sell securities. Do your own due dilligence.|||I work at a recording studio. So I am eligible to be part of a credit union.





See if your eligible for a credit union through your job!





Credit unions savings accounts can have an APR of like up to 4% , normal savings will have 1% if your lucky!





Best advice I got that won't lose your money in the stock market.