My youngest son is unlikely to go to college, though he may end up in a trade school at some point. I've decided to use my savings to pay off my car. This will free up about $300/month. I'd like to invest it somehow that will gain more than a savings account but is fairly low risk. If I need it for some schooling eventually I want it available. Otherwise I will use it in retirement at some point.

Would a regular money market be the best idea? I've a decent grasp on retirement accounts but know nothing of investing otherwise.

My mom and dad always said "pay yourself first." So My suggestion would be to first max out the contribution to a Roth IRA. Of course, this money would not be available to you until retirement unless you're willing to pay the taxes and penalty to get it out.

As for where to put that money, that's not something I'm good at so you'll have to research or discuss with a financial planner.

The Wealthy Barber was alway the book my mom wanted me to read.

Low cost mutual fund.

quote:

Originally posted by frayedends:
My youngest son is unlikely to go to college, though he may end up in a trade school at some point. I've decided to use my savings to pay off my car. This will free up about $300/month. I'd like to invest it somehow that will gain more than a savings account but is fairly low risk. If I need it for some schooling eventually I want it available. Otherwise I will use it in retirement at some point.

Would a regular money market be the best idea? I've a decent grasp on retirement accounts but know nothing of investing otherwise.

Recently for work I did a market analysis regarding how our pay compared to the private sector, when I finished I came to the conclusion that my college degree was useless and I should have gone to a trade school to learn how to repair elevators.

For the actual question, it would depend on how old your son is. For my kids I moved their money from a stock fund into a money market the beginning of their senior year in High School.

I agree with the Roth idea. Eventually this vehicle could go away because it truly is one of the few good deals left to a taxpayer. Yes it’s inaccessible till retirement for the most part but it basically will never be taxed ever and isn’t subject to RMD’s and it’s easy to pass down to heirs. It’s a win. As for where to put your Roth I like low cost mutuals as well. Not flashy but it will grow. If it doesn’t then we are all fucked so it won’t matter.

Any retirement account is out. My son graduated high school last spring. He is sorting out what he wants to do. He will likely end up in a trade school. He definitely isn't interested in college. I'm looking at needing about 12K for most of the 1 year programs. I'll have about 7K when I get my bonus this year but I want to put the rest in a liquid account if he decides to go to school soon.

If I was sure he wasn't going to school I'd do the Roth.


ETA: Looks like to contribute to a Roth there are income limits we exceed. $206K per couple.

quote:

Originally posted by pedropcola:
Yes it’s inaccessible till retirement for the most part

That's one of the many great things about a Roth IRA... The money's not inaccessible until retirement.

You can withdraw your contributions at any time, penalty-free. You just can't withdraw the gains until you're 59.5 years old.

Now, it's not a good idea to withdraw your contributions unless it's an absolute emergency, since you're screwing over your compounding. But it's still an option, if needed.

quote:

Originally posted by RogueJSK:

quote:

Originally posted by pedropcola:
Yes it’s inaccessible till retirement for the most part

That's one of the many great things about a Roth IRA... The money's not inaccessible until retirement.

You can withdraw your contributions at any time, penalty-free. You just can't withdraw the gains until you're 59.5 years old.

Now, it's not a good idea to withdraw your contributions unless it's an absolute emergency, since you're screwing over your compounding. But it's still an option, if needed.

That's interesting and I'd consider it but the darn income limits make it a no go apparently.

Open an IRA and put it into low cost funds or ETFs. Vanguard has a few very good choices. SPY is another one. Basically mirrors the S&P 500. If he doesn't want an IRA, just open a taxable investment account.

quote:

Originally posted by frayedends:
Any retirement account is out.

Okay.

Well, given your situation, your low-risk options are somewhat limited. Many of the really low risk options that pay better than a Savings Account are going to lock up your money for a period of time. These include stuff like CDs or Treasury I-Bonds.

You can invest it in something that's more liquid and offers higher returns, like opening a brokerage account and investing in stocks, bonds, and/or mutual funds, but those are going to be varying degrees of higher risk. It also complicates your tax situation with capital gains taxes.

If you're going to need ready access to it in the near future, and want to stick to really low risk, then a money market account or high yield savings account is probably going to be your simplest option there. But those are barely better than a traditional savings account... You're looking at something like 0.5% interest, which is better than the 0.01% interest in a normal savings account, but far below the return on most higher risk investments, or even low risk investments that you can't touch for a given period.

Isn’t there an account specifically designed for future educational expenses? Something like 529c I think?

quote:

Originally posted by Leemur:
Isn’t there an account specifically designed for future educational expenses? Something like 529c I think?

529 plan.

It's basically a high yield savings account, with the added benefit of potentially being tax-advantaged if the money is used for higher education expenses.

However, if he decides not to go to college or trade school, you end up having to pay taxes on it plus a 10% penalty if you withdraw it for use on anything else.

So in this case, since it's unclear if he's going to be pursuing further education, it may not be worth risking that steep penalty.

For short term, a year or so, Series I Savings Bonds from www.treasurydirect.gov where they are paying 7.12% interest and are adjusted for inflation.

“NEWS: The initial interest rate on new Series I savings bonds is 7.12 percent. You can buy I bonds at that rate through April 2022.”

”I bonds earn interest for 30 years unless you cash them first. You can cash them after one year. But if you cash them before five years, you lose the previous three months of interest. (For example, if you cash an I bond after 18 months, you get the first 15 months of interest.)”

A decent option for a readily accessible, simple, very low risk, short term plan would be to stick the $7k from the bonus in whatever's the highest yield money market or savings account you can find, and then set the extra $300/month to be auto-transferred into that same account. Once you hit $12k total in about 17 months, that becomes your son's potential education fund for trade school. (Just understand that you'll only going to be earning like $60/year in interest on $12k...)

Then you can switch the $300/month in future months to go into longer term retirement savings for yourself in the form of 401k or Traditional IRA contributions, investing in low cost index funds/target date retirement funds.

And when/if your son definitively decides not to pursue further education, you can then take the $12k from that account and invest it in something with higher returns for your retirement, or use it to pay down your mortgage, or use it to renovate your house, or keep it as an emergency fund, etc.



Another slightly more complicated and slightly higher risk option - potentially useful only if you don't already have a Traditional IRA that you're contributing to, and you're not covered by a retirement plan through work - would be to open a Traditional IRA with the $7k from the bonus, and invest that in low risk government bonds. Then set the $300/month to be contributed to that same IRA and invested the same until you hit $12k, before then branching out into higher risk/higher yield retirement investments with your $300/month after hitting $12k in safe bonds for potential education expenses.

There's a $6k IRA contribution limit annually, but you can still make 2021 contributions to an IRA until April 15, 2022. So $6k of the bonus would be your 2021 contribution, and $1k + $300/month would be your 2022 contribution.

This also has the benefit of giving you a tax write-off for your 2021 taxes, at least temporarily, since you'll have to pay the income tax on it when you withdraw it to pay for school.

Traditional IRA investments generally cannot be withdrawn until you're 59.5. However, there's an exception for qualified education expenses for you or an immediate family member. So if your son decides to go to trade school, you can pull $12k from your IRA to pay for that. And if he decides not to go to trade school it's already in your retirement account, and can just be rolled into a higher risk/higher yield investment as appropriate.

(Just understand that this IRA route doesn't give you the option of accessing that $12k to pay down your mortgage, or renovate your home, or using it as an emergency fund.)

quote:

Originally posted by jcsabolt2:
For short term Series I Savings Bonds from www.treasurydirect.gov where they are paying 7.12% interest and are adjusted for inflation.

Locks up the money for a minimum of 1 year, with a penalty to the interest if cashed within the first 2-5 years.

So may not be a good option, especially if he's potentially needing to access it within the next year. And considering the son in question has already graduated high school, that seems to be a very real possibility.

This message has been edited. Last edited by: RogueJSK,

quote:

Originally posted by Leemur:
Isn’t there an account specifically designed for future educational expenses? Something like 529c I think?

Unless there are state age limits, there are no federal age limits to 529s so this route makes sense. 529s can be used for college or trade school.

Vanguard offers target enrollment date portfolios that are a balanced portfolio that become more risk adverse the closer he gets to enrollment date.

maybe think about diversification. Stuff some in the mattress (not being silly) this is a good idea, buy some silver, buy a little stock in a company you think has potential to grow. Maybe seek out someone you trust who need some venture capital in their business and work out a simple plan with them. Some of these might have tax implications so figure that in. In today's world one need to think out of the box to be successful imho. Good luck.

quote:

Originally posted by tatortodd:
Unless there are state age limits, there are no federal age limits to 529s so this route makes sense.

See my above warning about the steep 10% penalty on the 529, if he ends up not going to college/trade school. (And some states have even further penalties on top of that. For example, California levies an additional 2.5% penalty, for 12.5% total...)

Are you willing to gamble $1200+ on whether the son will decide to pursue further education or not?

With my limited knowledge, I would recommend Fidelity mutual funds. They are low cost and have good returns over the long run. You must realize the market is hard on the technology funds at the moment. It is projected to get even worse in the short term. Look at the Fidelity OTC (FOCPX) fund. In existence since 1984 with an average lifetime return around 15%. If you have time to wait out the rocky road the economy is facing, it could be the investment you're looking for. Once the market is healthy again and you start making gains, those gains will be subject to taxes.

As someone who has been both a financial advisor and a tradesman. The best you are going to get is a high yield savings account (~.5%). There's nothing for that type of duration and liquidity that will pay much. Personally I'm too lazy, I'd just leave it in a regular savings account until I figured out if it's for the boy or retirement.

Now the financial part is out of the way, as far as trade school. What trade? Many employers/trades will pay for his education.

I actually just stopped my 529 contribution because he may not go to school. I think I’ll go the route Rogue suggested. It keeps me liquid for now and then if he doesn’t go to school I’ll invest it in retirement or the mortgage. Or guns.