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529 Waaa!

Experts say it's never to soon to plan for college savings.  With my first son, we started a 529 College Savings plan offered for Oregon last January when he was closing in on his second birthday.  I admit, I'm not sure if the Oregon College Savings plan was the best choice but I selected it mainly because it offers tax deduction for residents, and the fact that I wanted to choose a plan quickly before procrastination would soon kick in.  There are sites like Savingforcollege.com that offer tons of information but I don't have the stomach nor the patience to sift through the dizzying options.  Morningstar suggests Virginia, Utah, and Alaska have some of the best plans for those that don't like the options provided from your home state, but why?  What have you done?  What college savings plans have you opted to invest in and why?  What other alternatives are you seeking if you feel 529s are not the best option?


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So far, we're doing a spousal ROTH (in a Vanguard mutual fund--one of the target retirement funds that automatically shifts asset allocations). I know, this effects our retirement savings, so I'll probably open an additional account once I'm working again. Don't forget to sign up with Upromise also.

Specific to educational savings for Kate, we have a 529 that we started in TN but recently switched to OR, which has a better plan. We also have a Coverdell, which is like a Roth so it's after tax, with a max annual contribution of $2K. I found this link which has an overview of the different college savings plans (scroll down to +articles+ under *college savings plans*): http://www.babycenter.com/baby/babyfinance/index#babycollegeBkmk

We did not feel like the 529 was the best option for us, especially Oregon's which had been through a lot of turmoil and last year started out with whole new management. Besides that, there are practically no 529s that offer socially responsible investments, which was our priority for investing.

On the advice of our financial woman, we opened a Roth IRA to use for college savings. You can withdraw from a Roth with no penalty if it's used for education, and there are a bunch to choose from that invest using socially responsible criteria. This way, if the kids don't use it for college, ok, it's more retirement for us (not that I predict that scenario).

Thank you so much for the insight! Does anyone know what other investments does not count again student aid? On one hand, the 529 on the surface looks like a no-brainer option...you should do it! But what's this about the tax bill exempting earnings on qualified withdrawals from federal income taxes expiring on December 31, 2010? That doesn't sit too well with me. Also, I don't doubt that my kids will go to college, but you never know. What happens to the money then? Perhaps it might be wise to open on 529, and another Roth IRA?

Hau, I think that's a good plan; that way, if you're able to contribute the maximum (4000) to the IRA for a given year and you still have more to sock away (I should be so lucky!), you can stash it in the 529.

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