Personal Finance | Saving Money For College When Your Children Are Older

I think, without a doubt, a 529 is the better of the two. By saving there you immediately get a tax benefit. Keep in mind the person asking is from New York which I find to have a very good 529 plan run by Vanguard (known for their low expense fees). For the 15 year old I would tend to invest very conservatively . Maybe in a bond portfolio or a short-term investments portfolio. With only maybe three years until the money is used you want to preserve your investment and get some return as well. Risking in stocks in this short a period is risky. There’s not enough time to ride out a sudden drop in the stock market.

For the 12 year old I think you can get a little more risky. A small percentage could be put into stock funds since there’s a little more time to invest but still I would err on the conservative side.

The NY 529 site does a nice job suggesting funds for different ages and investment strategies (conservative, moderate, and aggressive investor). Here are the investment options for the NY Vanguard 529.

Why not the Roth IRA? I’ve heard of people using Roth IRA money to fund college. It’s allowed without tax penalty and if the money isn’t used it can stay in your Roth. Still I’m not too fond of this though. You’re only allowed so much to invest every year in a Roth (this year is $5000 plus another $1000 if you’re 50 or older). If you take the money out of the Roth you can never make that contribution back (like invest $10k the next year if you take $5k out).

Also I think a person has to make sure they have enough invested to retire comfortably when the time comes before worrying too much about college savings. Unless you know you’re child will be wealthy enough to take care of you later in life (and how many of us know that for sure?) you need to make sure you have enough to retire. I think it’s easier for a child to get a school loan and pay it off then it will be for a retiree to find cash to live off of.

Other options outside of the 529 could be bank CD’s, money market accounts, and high-yeild savings accounts.

What do you think? How would you invest for a 15 and 12 year old? You’re thoughts could help someone looking to do the right thing for their children.

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