Where to invest my money
While I really do not have much to work with so far, I figured I would discuss what plans I have for investing my money and what goals I hope to accomplish in the short-term and long-term.
At my age I sure have a lot to plan for: there's college, my first car, my first home, wedding, vacations, retirement, etc. I guess the one thing that people my age really need to plan for is college. It's really the first major financial hurdle I will have to overcome and without it the other things on my list become a lot harder to attain.
So let's talk about college savings for a little bit, those other topics are likely to appear in future postings. There are a number of options out there some better than others. The two major tax advantaged programs (limits the amount of my investment I have to give to the government in the form of taxes) out there are the Coverdale ESA and a 529 Plan.
Coverdale ESA
The Coverdale ESA allows for a maximum annual contribution of $2000 per year per student that is under 18 years old. You can setup a Coverdale with just about any brokerage company, mutual fund company, or bank. Which means you have a very large selection of possible investment products to invest the money in. The contributions are made with after-tax dollars and once they are in the account they grow tax-free as long as the money is used for qualified education expenses. This doesn't necessarily have to even be college. The money could be used for private grade school or high school, uniforms, computers, transportation costs, etc.
The money has to be used up by the time the beneficiary is 30 years old otherwise it will be subject to taxes and penalties. You also cannot contribute to a Coverdale if you make over $110,000 individually or $220,000 if filing jointly (needless to say mom and dad qualify). There are also some discrepancies as to who's name this account is really in. Some sites I found said it is in my name and others say that it is in my parents or the custodians name. Generally I found that it is in my name and when I turn 18 I could cash the money out and blow it all on a fancy new car. This site however says that the money is in my parents name. Regardless if I end up not using it for school whoever is in charge of the account can decide to use the money for education expenses of a sibling, cousin, in-law, etc.
529 Plan
The 529 plan is relatively new and each state has its own 529 plan. Some are better than others but you are restricted to investing only in the investment options that the state has chosen. The cool part is you can invest in any states 529 plan, so if your state's plan is not that attractive you can choose from any of the other 49 state's plans.
Like the Coverdale the money that you contribute to this account grows tax free and is also tax free when withdrawn. The money you contribute to the plan can also be tax deductible depending on your state. Lucky for me I live in Wisconsin and my parents, grandparents, great-grandparents, aunts and uncles can all contribute up to $3000 to my 529 plan per year and that money is tax deductible for them (this is only if I enroll in the WI 529 plan). This is a extremely rare when it comes to any type of investment where you get to contribute, grow, and withdraw the money without ever having to pay one cent to Uncle Sam.
Most states plans also have no restrictions on the amount of money you can contribute to the plan or the income level of the person contributing the money. The 529 plan is in the custodians control so they decide when money can be withdrawn and as with the Coverdale can decide to give the money to a sibling, cousin, in-law, etc. Also if you enroll in one state's 529 plan and decide you can do better with another state's plan you can transfer the money without penalty to a different plan once every 12 months.
Seeing as how 529 plans offer such great tax advantages and very little restrictions on who can contribute and how much they contribute I think I am going to concentrate on the 529. Also since I live in Wisconsin and they have given me such great tax incentives to enroll in their plan I am going to concentrate pretty heavily on their plan and unless it really stinks will likely keep my money in the state. I'll leave that evaluation for a different post.
Jack
At my age I sure have a lot to plan for: there's college, my first car, my first home, wedding, vacations, retirement, etc. I guess the one thing that people my age really need to plan for is college. It's really the first major financial hurdle I will have to overcome and without it the other things on my list become a lot harder to attain.
So let's talk about college savings for a little bit, those other topics are likely to appear in future postings. There are a number of options out there some better than others. The two major tax advantaged programs (limits the amount of my investment I have to give to the government in the form of taxes) out there are the Coverdale ESA and a 529 Plan.
Coverdale ESA
The Coverdale ESA allows for a maximum annual contribution of $2000 per year per student that is under 18 years old. You can setup a Coverdale with just about any brokerage company, mutual fund company, or bank. Which means you have a very large selection of possible investment products to invest the money in. The contributions are made with after-tax dollars and once they are in the account they grow tax-free as long as the money is used for qualified education expenses. This doesn't necessarily have to even be college. The money could be used for private grade school or high school, uniforms, computers, transportation costs, etc.
The money has to be used up by the time the beneficiary is 30 years old otherwise it will be subject to taxes and penalties. You also cannot contribute to a Coverdale if you make over $110,000 individually or $220,000 if filing jointly (needless to say mom and dad qualify). There are also some discrepancies as to who's name this account is really in. Some sites I found said it is in my name and others say that it is in my parents or the custodians name. Generally I found that it is in my name and when I turn 18 I could cash the money out and blow it all on a fancy new car. This site however says that the money is in my parents name. Regardless if I end up not using it for school whoever is in charge of the account can decide to use the money for education expenses of a sibling, cousin, in-law, etc.
529 Plan
The 529 plan is relatively new and each state has its own 529 plan. Some are better than others but you are restricted to investing only in the investment options that the state has chosen. The cool part is you can invest in any states 529 plan, so if your state's plan is not that attractive you can choose from any of the other 49 state's plans.
Like the Coverdale the money that you contribute to this account grows tax free and is also tax free when withdrawn. The money you contribute to the plan can also be tax deductible depending on your state. Lucky for me I live in Wisconsin and my parents, grandparents, great-grandparents, aunts and uncles can all contribute up to $3000 to my 529 plan per year and that money is tax deductible for them (this is only if I enroll in the WI 529 plan). This is a extremely rare when it comes to any type of investment where you get to contribute, grow, and withdraw the money without ever having to pay one cent to Uncle Sam.
Most states plans also have no restrictions on the amount of money you can contribute to the plan or the income level of the person contributing the money. The 529 plan is in the custodians control so they decide when money can be withdrawn and as with the Coverdale can decide to give the money to a sibling, cousin, in-law, etc. Also if you enroll in one state's 529 plan and decide you can do better with another state's plan you can transfer the money without penalty to a different plan once every 12 months.
Seeing as how 529 plans offer such great tax advantages and very little restrictions on who can contribute and how much they contribute I think I am going to concentrate on the 529. Also since I live in Wisconsin and they have given me such great tax incentives to enroll in their plan I am going to concentrate pretty heavily on their plan and unless it really stinks will likely keep my money in the state. I'll leave that evaluation for a different post.
Jack
posted by Jack at
6:35 AM
0 Comments:
Post a Comment
<< Home