529 Plan and College Savings

Archive for February, 2009

Question: Financial – Money Market account for college savings?

Plan is to put $1000 each birthday in an account to assist with college for my son. Don’t want to tie it to him or go with a 529 should plans change. Any risks in a Money Market from Schwab or another that would be in my name and use the money on him in 18-20 years?

Answer: Your money is safe in a money market account, whether at Schwab or elsewhere. The problem you are likely to face is more along the lines that the return on your investment is highly unlikely to be anywhere close to enough to pay for something as expensive as college. Saving only $1,000 per year and investing it in something with as low a yield as a money market fund will most likely result in a college fund in 18-20 years that will barely pay for one semester at an in-state college. In spite of the apparent greater risk, with an 18 year time horizon you would almost certainly be better off putting the money into a diversified stock fund.

Still, you are to be commended for saving anything at all. $1,000 per year for college is more than most parents can manage to save.