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My question is... To what extent can I take this money back from my 2... or later 17 year old if/when I need it. If I left it until he was 18, obviously he can do whatever he wants with it.
assuming it's still in this type of account when he is 17. Can I take it back to ensure it's used for college?
My question is... To what extent can I take this money back from my 2... or later 17 year old if/when I need it. If I left it until he was 18, obviously he can do whatever he wants with it.
assuming it's still in this type of account when he is 17. Can I take it back to ensure it's used for college?
CD's usually have a term defined. The answer can be any number of years. So a 5 year CD would be untouchable for 5 years. But I don't think 2.5% is a good enough rate for me to sock away money into a CD. Its guaranteed interest sure, but I bet you could do better elsewhere.
My question is... To what extent can I take this money back...
In short form... you can't.
In long form... there are ways to put the money in trust.
Back to short form:
Something like plain vanilla T bonds in their name with (you) as the "custodian for minor".
Plan the purchase(s) so that they mature well after the child is college age.
They can still be redeemed (cashed in) ahead of maturity...
but if they're in your safe deposit box until needed that'll be harder to do.
My question is... To what extent can I take this money back from my 2... or later 17 year old if/when I need it. If I left it until he was 18, obviously he can do whatever he wants with it.
assuming it's still in this type of account when he is 17. Can I take it back to ensure it's used for college?
You can open it for the 2 year old, when it matures before age 18 - use it for their benefit (clothes, schooling trips, etc) - it's legit. If you try it with the 17 year old, he can sue you for improper use of the money if you take it as soon as he turns age 18. If you have any misgivings about doing it, heed it and don't.
There are different types of vehicles and accounts for your kids. Each has it's own advantages and disadvantages. Personally, I like the custodial accounts for children while others will tell you they aren't a good idea.
There is no right or wrong answer. You can easily read up on "advantages/disadvantages of custodial accounts" on Google.
Once you transfer the funds to your kids it's "theirs". However, you can use the funds if it's for the kids. You are the custodian of that account and dictate what the funds are used for until they are 18 (or 21 in some states). You could use it for any legitimate purpose as long as it's truly for the kids.
Just keep in mind that you need to keep track if you do pull funds out and be prepared to show what you used it before. Although I will say I've never heard of anyone being asked to show what they used the funds for.
There are websites online that are good like ShareBuilder.com where you can set up custodial accounts. Personally I wouldn't lock up in a 4 year CD for only 2.5% but others might. You can invest in mutual funds or even stocks if you want on Sharebuilder. Just keep in mind any gains your child has, they have to pay taxes on that income. For example, I set one up for each of my kids and they have done well in the stock market each year. They have had to fill out a separate tax return since they were 1 year old. So you have to think about these sorts of things.
There are a number of prepaid college funds that remain under your custodial control ... and which, with rising college costs, will likely pay you much more than your CD accounts. Another alternative you might consider is an Annuity with a 10+ year maturity - This will provide you with the income you need to pay for college, while retaining the balance for the rest of your life.
I'm looking at the same thing ... but, as a grandparent of younger grandchildren and trying to put away money for their college in a sensible, tax-advantageous manner.
You need to look at the reason why you want to put aside the money, not just the rate.
We have both 529s and UTMA custodial accounts set up for our 3 children. Our purpose is to set aside the money so we can assure we are saving enough and to get a greater ROR because the money is taxed at the child's rate which is not our rate (high fed & state).
My oldest is going to college in 5 years and 90% right now is in stock mutual funds and balanced funds. Over the next couple of years, we will likely move this more towards 50/50 cash (CD) and mutual funds. Saving for college for a 2 year old is likely something you don't want to put into a 100% into CD at 2.5%, you'd want a better ROR.
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