What kind of account should I open for newborn ?

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dullard

Elite Member
May 21, 2001
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Some of the biggest states forbid deductions on 529 plans. So it depends on the state.

I would say in many cases a Roth IRA is a better way...
What state are you in, in some states a 529 is a good idea, in others the state gives no benefits for a 529, so it is pointless to use.
Tax free gains are beneficial no matter what state you are in.

The child can't withdraw from a Roth IRA until she is 59.5. That is a nice-to-have, but really she'll have that money when she probably already has a career and money. It just isn't that helpful to the child.

The 529 lets the child withdraw it right at the point in life where the child has her biggest expenses (pays for college and she'll be far less in debt when she wants a car or a house).

Both the 529 and Roth IRA let you invest in just about anything. Both are after-tax contributions for federal tax purposes. Both get tax free gains. Both have withdrawal restrictions and penalties if the child doesn't meet them. So, they are very similar to each other. The real key difference is the Roth IRA has a terrible withdrawal age for a child and the 529 has a possible state tax deduction.
 
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Dirigible

Diamond Member
Apr 26, 2006
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What state are you in, in some states a 529 is a good idea, in others the state gives no benefits for a 529, so it is pointless to use.

Not true.

Gains used for education being federal tax-free is a benefit regardless of state law.

Edit: Dullard beat me.
 

dullard

Elite Member
May 21, 2001
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Gains used for education being federal tax-free is a benefit regardless of state law.
Actually, even if they weren't tax-free gains, it can still be worth while depending on tax brackets. If you are in a high tax bracket and the child is a low tax bracket, then just shifting gains from one bracket to another (forget even pretending to use this on educational purposes) can be very valuable.
 

Kneedragger

Golden Member
Feb 18, 2013
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What state are you in, in some states a 529 is a good idea, in others the state gives no benefits for a 529, so it is pointless to use.

I'm in California. I thought everyone on this site was from Silicon Valley?! ;)
 

Dirigible

Diamond Member
Apr 26, 2006
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I'm in California. I thought everyone on this site was from Silicon Valley?! ;)

Here in CA, we don't get state tax benefits from a 529 account.

If you do open a 529, don't just blindly use the CA version. You can use another state's version, and last I checked CA did not have the best one.

So dullard doesn't school me again :)P), a disclaimer: my post is not thorough or complete, but is only meant to give you some things to think about.
 

akshatp

Diamond Member
Oct 15, 1999
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UESP (Utah Educational Savings Plan)

You dont need to be a resident of Utah to open a plan there. The funds can be used for college in any state also.