never thought i would post in this part of the forum, but here i come

a relative of mine suggested to give some money to put away for my daughter college education. i know NOTHING about this stuff. is there a website i can get some basic info on how those educational funds work?

if i do open an educational fund for her, will i be able to get the money only once she goes to college, or, let's say, for high school as well?

is it the same as putting money in the stock market? or more like CD (it's the only thing i know about, more or less)?

i'm planning on going to a financial advisor in my bank, but don't even know what exactly to ask him.

any advice will be appreciated

no one at all? i was really hoping...

Ask psycho, he usually knows about stuff like this. I'm clueless about stuff like this, so don't listen to anything I have to say on the topic.

An educational-IRA is the best bet, as you can use the funds for secondary school, and not just college. You can also use it for indirect educational expenses, such as a computer, uniform and books.
The other option is a 529, and living in NY we actually have one of the highest rated 529 plans out there but for that, it is only for college and it's tax-deferred not tax-free, as the E-IRA is.

My grandparents put money aside for both my brother and me when we were born, for our college education, in mutual funds I believe. It's an excellent idea. So far, for me (as my brother has yet to enter college), it has saved my mom thousands of dollars a year. It's good your doing this.

collegeboard.com
Search for what you want.

I have a CD but have in mind Im getting 10% and you will get around 4.5%
How old is your daughter? When yousign up for a plan make sure you check the date when it pays out as my dad got hit with his policy and it only pays out when Im 25.

If you want more information then just PM me more details.

i didn't want to write any specific names, but hope he'll still appear




what is IRA - do you just lock up the money like in CD and get the interest or you have to invest in different stocks (and keep track and switch constantly)? do i get to choose for how long? will the bank know about it if i go and ask them? are there different types of this educational IRA? what does it mean it's tax-free? every year i have the interest i don't have to pay taxes and at the end when i take the money out i don't have to pay either?

i like the idea of it being good for high school and the indirect expenses.



i wouldn't do it if my relative didn't give the money. would be even better if he arranged all this by himself; i hate this stuff! but, ye, many years down the road i'll be thankful for this



CD is, probably, the only financial thing i'm familiar with. we actually have now around 5.25%, but, yes, far from your 10%. i would gladly do CD cause it's risk free (at least short term ones i know about), but the return is not that great.

my daughter is 19 months so, plenty of time




thanks, will check it

You open up an E-IRA account with a brokerage or bank and then you can do with the money whatever you want.
If you want to put it into a CD that's fine (not financially fine, but fine), I'd rather invest it in a mutual fund or ETF. The money you put in is after-tax income, so any money you make in the account would not be taxed. So if you invest $1,000 now and 18 years from now you take out $500,000, that money would be tax-free. You can't take money out every year, you can only take it out for educational purposes and then you won't pay any taxes or penalties. It's basically a brokerage account that is like a Roth-IRA except it's for educational purposes.
You should also look into Upromise.com.

what's ETF?
i'm not sure i understood the "after tax income". as long as i don't withdraw money before the maturity date and only take for educational purposes, i don't pay taxes on it at all?

so, mutual fund is all those stocks i ahve to keep track of, right?

let me know when you get tired of explaining

after tax income is money in your wallet, you already paid income tax on it. This is different than tax-deffered where the money you invest is pre-tax and the money will be taxed upon withdrawal.

Only a CD has a maturity date, and you can't take the money before the maturity without a penalty, in most cases. In an E-IRA, you wouldn't want to invest in a CD, especially if you have lots of time to invest. You'd want a mutual fund or ETF, where you would earn more than a CD.
A mutual fund is something you wouldn't have to keep track of. You basically select a fund that fits your profile and then invest. The fund managers are the ones who decide which stocks to invest in in order to keep the mutual fund on par with the fund's prospectus and profile. An ETF is like a fund except it trades like a stock, a MF only trades once a day, after the market closes.

thanks a lot for taking the time to explain all this!!

1. so, do i pay the tax on the money at the time of opening the IRA? i don't get it

2. ok, i understand CD is not the best idea financially.

wouldn't IRA also have some date when i can start using the money for educational purposes without the penalty (like when she is ready for high school or college).

how come my relative said that he monitors the stock market himself all the time and switches between stocks. does it mean he didn't invest in mutual fund, but something else?

guess, i shouldn't ask anything else about an ETF, i have no clue what trading is.

what various fees could be there connected to E-IRA? does it matter which bank i go with?

No problem, I like finance and I like talking about it and I like when Frum Jews are responsible enough to realize that investing is a smart choice.
No, you already paid taxes on it. Think of it as taking your net paycheck (with the taxes taken off already) putting some money into the bank, some money for rent and then some money into this IRA.
Right, it's good for short term, but not when your kid is little.
An E-IRA can be used for secondary education in addition to college. Once the money is used for a qualified event, there is no penalty to take out the money.
Right. With a fund, you don't need to actively look at the market. You invest in a high-rated fund that matches your criteria and you can check every so often and sell/buy more, but you aren't making active investing decisions like a day-trader or an active-trader.
, right. For now though, an ETF is just like a mutual fund except it trades throughout the day, a mutual fund trades after the market closes.
There might be an account fee, a fee if you have less then $X, some places will lower their fees if you set up an automatic deposit from your bank to your account, etc.
Yes, many places offer different things. Some brokerages offers free-advice, others are just no-frills. Others can let you basket all your accounts so that your fees are lower because you have more than $X invested with them, throughout all your accounts.
I wouldn't go with a bank, they tend to not offer as much.

1. i hate to admit it, but i feel exceptionally dumb. don't we have to pay taxes on all investments at some point or another? i don't pay taxes when opening a regular account, but pay taxes on interest (by including it into my income). will this IRA then be counted as part of my income when opening it and then i pay taxes? or will i pay taxes on the profit when taking out the money?

2. but the money has to be used for a qualified event at some qualified time. for example, i can't use it when she didn't start the high school yet, right? so, that was my question. does it automatically set the deadline as starting the high school or i get to choose (high school, college, etc?). btw, will it be good for post-college aducation as well, like master's (not that i'm getting this much money, but i'd rather her go to a city college for bachelor's, thus saving the money for the master's)?

3. what could my criteria be? like if i want it to be invested in computer technology or coke?

4. where do i find those brokerages? guess, it doesn't hurt to ask a few what they offer and compare.

1. You won't pay any taxes on the money you earn.
2. There's no deadline that I'm aware of (but I think I read somewhere of age 30, but that could just be when you can take the money out with a penalty if you didn't use it.)
3. Right, in addition to your risk tolerance.
4. etrade, charlesschwab, etc. You can go to the library and see if Consumer Reports has a comparison of the different brokerages.

You may hate this kind of thing, but at least he's letting you choose HOW to handle it. He could have just picked something himself and you later find out it wasn't the best choice.

You may hate this kind of thing, but at least he's letting you choose HOW to handle it. He could have just picked something himself and you later find out it wasn't the best choice.

You may hate this kind of thing, but at least he's letting you choose HOW to handle it. He could have just picked something himself and you later find out it wasn't the best choice.

You may hate this kind of thing, but at least he's letting you choose HOW to handle it. He could have just picked something himself and you later find out it wasn't the best choice.

You may hate this kind of thing, but at least he's letting you choose HOW to handle it. He could have just picked something himself and you later find out it wasn't the best choice.

You may hate this kind of thing, but at least he's letting you choose HOW to handle it. He could have just picked something himself and you later find out it wasn't the best choice.

Cynic, are Educational IRA and Roth IRA the same thing?



he is letting me to handle it because he doesn't want an additional headache. trust me, if he were to choose and handle it, i would be 200% sure the money is invested well. that guy learns thoroughly about everything he needs to know. for example, he himself invested his money into stocks and keeps on monitoring them very closely, switching when necessary.

(arrgh...annoying quote button that won't work)
Aviva - do you think you made the point enough times (I know it's the upgrade, not you)

But I'm with elana here, someone gave me a check for $X when a baby of mine was born and told me what to invest it in. All the effort it took me, wasn't worth the amount of cash. Luckily, it was someone who I could tell to never do that to me again and if s/he wants to give me a gift like that (not has to, but wants to) to please do the leg work.

well, in my case i'm willing to do this cause i know that, in the end, my daughter (and I) will benefit. the sum is nice. it's just annoying (not really the right word) to do smth i know nothing about.

No, but fundamentally they're the same, they just have different rules as to when you can take out the money.
They are both after-tax, meaning you will not pay taxes on money earned. A Roth-IRA is for retirement, an E-IRA is for education, so they will have different requirements to withdraw money.

hm. i went to two banks today. one of them told me 2 options - roth and 529, another one - only 529. i automatically assumed roth and E-IRA are the same. the told me about roth that that kid (or I?) can take out the earnings (not the principle, i believe) only after i'm 59 y. old, otherwise there will be penalty (or taxes?)

and another thing about IRA - there is a limit to how much can be added each year ($4,000). now, my relative wants to give a lump sum now.

re: 529 - the money is tax-deferred (is that the right term? my head is still spinning from all that info), so i'll be able to write it off every year plus, if the money is spent on college related expenses when my daughter is in college, then there is no tax at that point either.

here is my other question:someone has extra money that he wants to invest in a mutual fund and i'll have this money to invest there for future college expense. we can go the same route, no? just pick a mutual fund and invest directly there. so, why bother with choosing E-IRA or 529 at all? (my guess is that if bother with them, will get tax benefits plus the money are secured fro college and won't be spent before that)

True. Well, be that as it may, you're doing it. That's what counts.



Here too?! Oy! Sorry peeps.

ye, i'll just pray my daughter doesn't end up with less money in 17 years than is being invested due to my inexperience

Ask a financial adviser at the place where you bank. They should have people to help you with these kinds of things.

right, went to two banks yesterday. but, as people told me, it might not be the best idea to go through the bank.

see, you also thought it would be easy, as long as there is money to invest?

People often don't realize that investments made at a bank may not be FDIC protected nor regulated in the same way as bank deposits.

Ha. Investing is easy? No way. So many options, which to choose? But at least at a bank they can give you some definite answers as to your options and explain things. Doesn't mean you have to listen to them though.

OK, i need more help on this.

i'm still in the phase of choosing the right college plan; not too many options here. i'm afraid that the type of a plan i want doesn't exist, but i'm afraid to settle.

here is what i'd want in the plan:

1. have tax advantages.
2. be good not only for college, but high school as well (btw, just curious, would seminary also count as higher education? it could be counted towards college credits, right?)
3. the main point - what if my daughter decides not to go to college? (chas veshalom, tfu-tfu-tfu, etc ) i don't want to pay big penalty (10%) and taxes then! changing beneficiaries is not an option.
4. i (well, my relative) would like to put all the money right away.

i know, basically there are 2 plans - 529 and Coverdell ESA (formerly known as Educational IRA) plans. both have tax advantages; both can be use be used only for education (with penalties otherwise); Coverdell can be used for elemntary/high school education as well, but you can contribute only up to $2,000 annually - which is a shame, cause i can be earning more if all money is invested right away.

what should i do?

no ideas? no one is familiar with this?