Bank and Savings Accounts for Minor Children

A good start for children is to give them bank and other savings accounts when appropriate.

For our children we set up two financial accounts when they arrived.  One was a 529 college savings account. We contributed the maximum amount that was deductible from state income taxes each year.  The contributions were invested in two mutual funds, one growth and one value.  Over 20 years, the value of our total contributions would almost double at a 7% rate of return.  For reference, the average stock market annual return is 10%. 

The second was a custodial savings account, which we planned to use for funding her future allowance.  A side benefit of this account is that the interest earned is not subject to federal or state income tax.

We set up a third financial account once the oldest started earning money, a Roth IRA account.  The intent was to both teach her about saving for retirement and to give her an early start on retirement savings.   To fund the account, we used the funds in the custodial account for contributions.  The maximum allowed contribution to a Roth IRA in 2025 is the lesser of $7000 or amount earned.  For perspective, $7000 in a Roth account earning an average of 7% a year will be worth over $100,000 in forty years, tax free.

The custodial accounts will convert to their own accounts once they reach 21, while the 529 plan will continue to be owned by my spouse, with our child as the beneficiary.  If there are funds leftover, they can be transferred tax free to another family member.   A recent added benefit is up to $35,000 or 529 funds can be used as Roth contributions in the future.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial nor custodian account advice. Please consult a professional advisor.

Copyright © 2025 Achievement Catalyst, LLC

Turbocharge 529 Plan Contributions

Here's a hack I found that can increase your tax deductible contributions to a state supported 529 plan.  

In my state, contributions to the state 529 plan are deductible on a state tax return.  We started contributing the maximum to my daughter's account the year she arrived.  Unfortunately, this amount, even if contributed every year, would not cover her college expenses.    However, I realized that 529 plans could be opened for us, the parents, which enabled us to triple our tax deductible contributions, which tripled the amount of tax exempt earnings. 

In the future, we could transfer the funds to our daughter's account, avoiding tax consequence, if we kept the amount below the annual gift exemption.   Thus, each parent can transfer up to the maximum gift tax exemption ($19,000 in 2025) each year per child.

If there is money after college, the beneficiary can use up to $35,000 to contribute to a Roth IRA account.

Terrific benefits of contributing a 529 College savings plan.  Use the hack above to contribute, deduct, and earn even more than just contributing to the child's account.

For more on Ideas You Can Use , check back every Tuesday for a new segment.

This is not financial, tax, saving, 529 plan advice. Please consult a professional advisor.

Copyright © 2025 Achievement Catalyst, LLC

College 529 Account Returns are Flat for 2010

Although we typically make our college saving account contributions in January, I decided to wait in 2010 in case the market dipped again. In preparation for the 2010 contributions, I reviewed the current status of our college 529 savings accounts. We originally opened the accounts in December 2005 and have made the maximum state tax deductible contribution for each year. Through 2008, we invested the contributions evenly in the Aggressive Growth, 500 Index, Extended Market, and International funds with Vanguard. In 2009, we changed our contribution mix and added to the Aggressive Growth, Extended Market and Morgan Growth (new for 2009) funds.

The table below shows the total return for the contributions that have been made to date. The first column shows how the bear market of 2008 significantly reduced our college savings accounts. Not only were all the gains from 2006 and 2007 eliminated, the losses also reduced the principal from the contributions. However, the recovery since March 9, 2009 has enabled the accounts to break even. Most of the improvement in the 529 accounts had occurred by 10/14/09. For 2010, the return has essentially been flat. Here are the results as of 9/14/10:

	Returns
Fund	Total Return 11/5/08	Total Return 10/14/09	Total Return 1/6/10	Total Return 9/14/10
Vanguard Aggressive Growth Index Portfolio	-25.08%	-0.51%	3.39%	3.13%
Vanguard 500 Index	-27.74%	-15.15%	-11.24%	-11.32%
Vanguard Extended Market Index	-29.89%	-1.63%	5.98%	10.17%
Vanguard Developed Markets International Stock Index	-31.25%	-11.09%	-9.91%	-12.72%
Vanguard Morgan Growth	-	27.22%	34.50%	34.06%
Total	- 28.74	-3.61%	0.04%	0.06%

This analysis had shown me the high volatility of equity investments in our 529 plans. Since our daughter is 13 years away from attending college, we will continue to invest the funds in the stock market. When it gets closer to needing the funds, we will definitely want to avoid this level of fluctuation. Thus, we plan to move a significant portion to interest bearing accounts within 2-4 years of needing the money for college.

In addition, this analysis shows the benefit of continuing to make contributions as the market declines, i.e. dollar cost averaging downward. The 2009 contributions, made in January 2009, were distributed among the Aggressive Growth Index, Extended Market Index and Morgan Growth Index funds. Those funds are now above the amount principal contributed. The other two funds, which did not receive any contributions in 2009, are still below the original principal, being down 11.32% and 12.72%

Our plan is to make the maximum state tax deductible contribution for 2010.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial, saving or investment advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

College 529 Plan Accounts Are Now Breakeven

In preparation for making 2010 contributions, I reviewed the current status of our college 529 savings accounts. We originally opened the accounts in December, 2005 and have made the maximum state tax deductible contribution for each year. Through 2008, we invested the contributions evenly in the Aggressive Growth, 500 Index, Extended Market, and International funds with Vanguard. In 2009, we changed our contribution mix and added to the Aggressive Growth, Extended Market and Morgan Growth (new for 2009) funds.

The first column shows how the bear market of 2008 significantly reduced our college savings accounts. Not only were all the gains from 2006 and 2007 eliminated, the losses also reduced the principal from the contributions. However, the recovery since March 9, 2009 has enabled the accounts to break even. Most of the improvement in the 529 accounts had occurred by 10/14/09, the date of the previous update. Here are the results as of 1/6/10:

	Returns
Fund	Total Return 11/5/08	Total Return 10/14/09	Total Return 1/6/10
Vanguard Aggressive Growth Index Portfolio	-25.08%	-0.51%	3.39%
Vanguard 500 Index	-27.74%	-15.15%	-11.24%
Vanguard Extended Market Index	-29.89%	-1.63%	5.98%
Vanguard Developed Markets International Stock Index	-31.25%	-11.09%	-9.91%
Vanguard Morgan Growth	-	27.22%	34.50%
Total	- 28.74	-3.61%	0.04%

Previously, this analysis had shown me the high volatility of equity investments in our 529 plans. When it gets closer to needing the funds, I will definitely want to avoid this level of fluctuation. Thus, I plan to move a significant portion to interest bearing accounts within 2-4 years of needing the money for college.

In addition, this analysis shows the benefit of continuing to make contributions as the market declines, i.e. dollar cost averaging downward. The 2009 contributions were distributed among the Aggressive Growth Index, Extended Market Index and Morgan Growth Index funds. Those funds are now above the amount principal contributed. The other two funds, which did not receive any contributions in 2009, are still below the original principal, being down 11.24% and 9.91%

We will continue to make the maximum state tax deductible contribution for 2010.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial, saving or investment advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

College 529 Savings Account - Recovered Significantly in 2009

In preparation for our year end financial review, I looked at the college 529 savings accounts for our family. We originally opened the accounts in December, 2005 and have made the maximum state tax deductible contribution for each year. Through 2008, we invested the contributions with in the Aggressive Growth, 500 Index, Extended Market, and International funds with Vanguard. In 2009, we changed our contribution mixed and added to the Aggressive Growth, Extended Market and Morgan Growth (new for 2009) funds.

The first column shows how the bear market of 2008 significantly reduced our college savings accounts. Not only were all the gains from 2006 and 2007 eliminated, the losses also reduced the principal from the contributions. However, the recovery since March 9, 2009 has enabled the accounts to almost reach break even. Here are the results as of 10/14/09:

	Returns
Fund	Total Return on 11/5/08	Total Return on 10/14/09
Vanguard Aggressive Growth Index Portfolio	-25.08%	-0.08%
Vanguard 500 Index	-27.74%	-15.15%
Vanguard Extended Market Index	-29.89%	-1.63%
Vanguard Developed Markets International Stock Index	-31.25%	-11.09%
Vanguard Morgan Growth	-	27.22%
Total	- 28.74	-3.61%

This analysis has shown me the high volatility of equity investments in our 529 plans. When it gets closer to needing the funds, I will definitely want to avoid this level of fluctuation. Thus, I will definitely move a significant portion to interest bearing accounts within 2-4 years of needing the money for college.

We will continue to make the maximum state tax deductible contribution for 2010.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial, saving or investment advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

College 529 Savings Account - Signifcantly Down

In preparation for our year end financial review, I looked at the college 529 savings account for our four year old daughter. We originally opened the account in December, 2005 and have made the maximum state tax deductible contribution for each year. To date, we have split the contributions with 31.25% each in the Aggressive Growth and International funds and 18.75% each in the 500 Index and Extended Market funds.

The bear market of 2008 has destroyed the college savings accounts. Not only have all the gains from 2006 and 2007 been eliminated, the losses have also reduced the principal from the contributions. Here are the results as of 11/5/08:

	Returns
Fund	YTD 11/5/08	Loss since 2005 (not annualized)
Vanguard Aggressive Growth Index Portfolio	-35.50%	-25.08%
Vanguard 500 Index	-33.95%	-27.74%
Vanguard Extended Market Index	-36.59%	-29.89%
Vanguard Developed Markets International Stock Index	-41.23%	-31.25%
Total	-	-28.74%

Until doing this analysis, I didn't realize we had lost almost 29% of our contributions. It's a good thing we don't need the money for another 14 years. Hopefully, the market will recover by then :-) Seriously, this bear market has clarified my future investment strategy for college funds. I will definitely move a significant portion to interest bearing accounts within 2-4 years of needing the money for college.

In the meantime, we will continue to make the maximum state tax deductible contribution for 2009. However, this time we will stagger the contributions over several months, in case the market continues to decline. Also, the contributions will be divided such that each fund again will have 25% of total contribution made since 2005.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

College 529 Savings - 2006 and 2007 Gains Gone

For our three-year old's college education, we are invested in four Vanguard funds through a college 529 plan. While we won't need the money for another 14 years, it has been particularly painful to watch the decline during the January, 2008 stock market correction. The accounts has lost virtually all of its 2006 and 2007 gains, as of 1/18/2008. Two years of gains have been wiped out in two and a half weeks:-(

I am not too concerned yet. At this point, I will continue to hold the funds and wait for a recovery. Hopefully, we won't have to wait 14 years:-) In addition, this correction validates a future strategy of transferring funds to "stable" investments, such as CDs, in the one or two years prior to attending college. I'd hate to have a drop in the stock market reduce the account value just before I needed the money.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

Maximizing The Tax Benefit Of Our College 529 Plans

Since we plan to pay for our three year old's college education, we continue to make contributions to a 529 plan, even though we retired in our forties. Since our state allows deduction of 529 contributions for tax purposes, we typically add an amount equal the maximum deduction allowed. However, when we first opened the account, we learned that we could maximize tax deductible contributions by also opening a 529 account for my spouse and me. This works because the 529 account funds can be transferred to a different beneficiary, who is also a family member, at any time. Thus, in the future, we can combine all three accounts for my daughter's use.

Of course, 529 plans already offer tax exempt earnings when used for higher education expenses. The flexibility to transfer beneficiaries provides us several additional benefits:

Triples our yearly deduction for state tax return. Our state has a yearly maximum deduction for each beneficiary of a qualified 529 plan. By opening three 529 accounts for my spouse, our daughter and me, we can deduct the maximum of each account. This also triples the amount we contribute each year for the eventual benefit of our daughter.

Enables parents to use the funds for themselves. Since we are the beneficiaries of two accounts, we can use the funds for ourselves should we decide to take additional higher education courses. Of course, our first priority is our daughter's education, but it may make sense based on tax benefits for us to use the funds first.

Pre-fund an account for a future child. A 529 account can be created for an expected child in the future by opening it for a "family member" and later transferring it to the new child. In our case, we have already opened 529 accounts for ourselves. Therefore, we would need to open a 529 account for one of our parents (i.e. the child's grandparents) or first cousin in order to have a direct beneficiary transfer to the child.

Since we are in the process of adopting a second child, we will consider the option of pre-funding a 529 account when the adoption date is set.

For more on Crossing Generations , check back every Thursday for a new segment.

This is not financial or tax advice. Please consult a professional advisor.

Copyright © 2008 Achievement Catalyst, LLC

College 529 Savings Account Results

In preparation for our personal year end financial review, I looked at the college 529 savings account for our three year old daughter. We originally opened the account in December, 2005 and have made the maximum state tax deductible contribution for each year. To date, we have split the contributions and invested equal amounts in each fund. Here are the results as of 12/11/07:

	Returns
Fund	YTD 12/11/07	Overall Gain (not annualized)
Vanguard Aggressive Growth Index Portfolio	6.97%	17.9%
Vanguard 500 Index	5.87%	16.0%
Vanguard Extended Market Index	4.85%	11.6%
Vanguard Developed Markets International Stock Index	13.11%	32.9%
Total	-	19.6%

The table shows that the International Stock Index has done the best this year and over the past two years. Notably, the Vanguard Extended Market Index, which invests in small to mid-cap stocks, has under performed the other funds, indicating that we are likely in the late stages of the bull market when large cap stocks tend to perform better than small cap stocks.

Based on this analysis, I will make an adjustment to the allocation of next year's contributions. Instead of putting 25% in each fund, we will put 50% in 500 Index fund and 50% in the International Stock Index fund. The reason I didn't choose the Aggressive Growth Index is that it appears to approximate a 85%/15% blend of the 500 Index and International Index funds.

For more on Crossing Generations , check back every Thursday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Choosing a College 529 Plan

Since we plan to cover our daughter's college education, we looked into college savings options not long after she arrived. My financial advisor helped me to quickly sort through the options, and recommended our state 529 plan. Contributions by residents were tax deductible, fees were among the lowest, and there was a great selection of funds. He added the qualification that they had just started recommending our state 529 plan after it added a new family of funds. Prior to that they were recommending other states' plans, even though there was a resident tax deduction for our state's plan. After reading the materials from the plan, I immediately sent in our first contribution.

For those who don't have a financial advisor, I'd recommend three sources for helping with one's decision.

How Stuff Works. This is one of my favorite Do-It-Yourself sites. It provides a great explanation of How 529 Plans Work and shares eight steps for Choosing the Right Plan. I consider the first three steps the most important: check one's own state, evaluate the plan manager, and estimate total fees. I would also add evaluating the the funds that are in the plan.

Saving for College. They have a great section on 529 plans with an introduction to 529s that includes answers to FAQs. In addition, they provide an evaluation of every state's plan with their 5-cap rating system.

Lazy Man And Money. Lazy Man shares his 529 Plan analysis which includes elements of the eight steps from How Stuff Works and uses information from the 5-cap rating system in Saving For College. His main criteria were: low minimum investment amount, low maintenance fees, low expenses, and good fund choices. Even though he lives in California, he chose plans from Ohio and Michigan as his top two 529 picks.

For more on Crossing Generations , check back every Thursday day for a new segment.

Photo Credit: morgueFile.com, Jane M. Sawyer

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Investing 529 Plan Contributions

I've been happy with the returns on the college savings in our 529 plan. So I am following the same investment strategy with the 2007 contribution I made in January. Here's how I've invested the 529 contributions since 2005:



25% Vanguard Aggressive Growth Index Portfolio
25% Vanguard 500 Index
25% Vanguard Extended Market Index
25% Vanguard Developed Markets International Stock Index

As of January 31, 2007, the one year return of these funds was 14.56%, 14.24%, 10.52% and 20.11% respectively. I continue to divide our college savings equally among these funds instead of putting the majority in the highest returning fund. I believe all of these are good funds and will have good returns over the long term. Therefore, I don't try to choose the best fund for the year and just put an equal portion in each fund.

For more on Crossing Generations , check back every Thursday for a new segment.

Photo Credit: morgueFile.com, Michael Connors

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC