College Savings

[ray23]

I have two nephews, ages 4 & 6 it occured to me that if I started a savings fund with as little a 1K a month each now for them they would have a good start on Univsersity fees. Now the next question is where will they get the best return on thier savings?

[lanny]

You don't say whether you and your nephews are American, British, or what. The answers could be different, depending on what country is involved. My reply is based on the assumption that you are all Americans.

I wonder if you have really thought this through? Have you consulted with the boys parents?

If you put the money in accounts in your name, you will have to pay tax on the earnings - at your marginal rate. If you put the money in one or two trust funds, the trusts will have to pay tax on their earnings. If you put the money in accounts in the boys names, there will come a time when the boys will have to pay tax on the earnings -- even before they start college! If you put the money in accounts in the boys names, when they reach the age of majority (usually 18) they can use the money any way they choose - on cars, girls, booze, or drugs. If you use trusts, you may be able to defer the boys choices but they still would have rights to the money.

Do you think your nephews are likely to want financial aid when they start to college? If so, having money in their names, either directly or through trusts, can reduce the available aid. When it comes to financial aid, the conventional wisdom of saving the the student's own name is ofter the wrong thing to do.

As you can see, this is not a simple matter -- and I do not guarantee that I've even mentioned all the possible consequences! You need to consult a qualified financial planner or accountant before you do anything.

[ray23]

Thanks sorry about that Thai.

Probably changes a lot about a thoughtful post, ,my apologies thank you.