I'm trying to contribute to my grandchildren's future college. I closed out Illinois Brightstart accounts because I became nervous about the reliability of the State of Illinois to provide future funding. I purchased blue-chip stocks that had been doing well for me, using custodial accounts. That stock has been distributed back to me due to a buy-out. So where do I go now with the funds? It is only $500 per grandchild, they are 1-3 yrs old. My intention is to add several $100 each year, more if I have it. (At the moment I do have some additional funds I could use if there are minimum balances to consider.) I could do 529 but there is the issue of the State of Illinois again. What to do?

Terry Says:

Whew — you seem to keep making ill-informed and costly decisions.  The time to ask is BEFORE you act!   First of all, you didn’t have to close out the Bright Start account;  you could have transferred it to another state’s plan.  Remember, the only benefit to using your state plan is a small tax deduction (in some states, including Illinois, for your contributions).  Second, the WORST thing you can do for a child is to buy stocks in a custodial account!  Money in a custodial account, even if the grandparent is custodian, weighs 7X more heavily against the family in the financial aid formulas for Federal Student Loans.  AND, when the child reaches age 18, the money is his or hers to spend as she pleases!

I suggest starting over with a NEW 529 college savings plan.  Contact Fidelity or Vanguard about their plans (for other states).  Remember the money can be used for college in any state for any child in the family.  Open a new plan and invest in their age-based program – and keep contributing.


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