I have a baby on the way and own my own business.

Because I have my own business my income is volatile every month, and don't want to count on contributing monthly for 20 years for my child college because of the possibility that it could hinder our ability to save if times get ruff. ( more or less I try to keep monthly payments to a very minimum )

Wanted your opinion on opening and dumping $20,000 in a good growth mutual fund.

I figured with compound interest over 20 years that could equal around 100k if I am lucky.

I would also use whatever money through out the years my child got from family gifts and drop it in the account.

20 years at 5% = 53,000 20 years at 10% = 134,000

Also - this money is for "college", but other items as well - like a car, or down payment to a house if there is extra money left over.

This is basically my attempt to get ahead of the curve so when I am 50 years old I wont be in a situation of taking on 50k dollars worth of debt help my child get through college.

Is the a good option? flawed option? Better options out there?

  • 1
    I'm voting to close this question as off-topic because I think it matches, "Requests for specific investment buy/sell advice; e.g. "should I sell X?" or "should I buy Y?" or "will X continue to go up?"" Mar 3, 2015 at 19:20

1 Answer 1


Look at your options with a 529 program. If the money is used for education expenses: that currently includes tuition, room & board (even if living off campus), books, transportation; it grows tax free.

Earnings are not subject to federal tax and generally not subject to state tax when used for the qualified education expenses of the designated beneficiary, such as tuition, fees, books, as well as room and board. Contributions to a 529 plan, however, are not deductible.

If it is a 529 associated with your state you can also save on state taxes. You can make contributions on a regular basis, or ad hoc. Accounts can even be setup by other relatives. I have used a 529 to fund two kids education. It takes care of most of your education expenses.

529 programs are available from most states, and even some of the big mutual fund companies. Many have the option of shifting the risk level of the investments to be more conservative as the kids hit high school.

Some states have an option to have you pay a large sum when the child is small to buy semesters of college. The deal is worth considering if you know they will be going to a state school, the deal is less good if they will go out of state or to a private college.

The IRS does limit the maximum amount that you can contribute in a year an amount that exceeds the 14,000 annual gift limit:

If in 2014, you contributed more than $14,000 to a Qualified Tuition Plan (QTP) on behalf of any one person, you may elect to treat up to $70,000 of the contribution for that person as if you had made it ratably over a 5-year period. The election allows you to apply the annual exclusion to a portion of the contribution in each of the 5 years, beginning in 2014. You can make this election for as many separate people as you made QTP contributions

One option at the end is to take any extra money at graduation and give it to the child so that it can be used for graduate school, or if the taxes and penalties are paid it can be used for that first car. It can even be rolled over to another relative.

  • That $20K is almost enough for a 2+2 prepaid 529 program in MD... Mar 3, 2015 at 22:32

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