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Flexibility and Stability: Smart Savings for Your Child’s Future

Hello, Financial Whiz! I was recently asked by my son’s godfather whether we should set up a 529 plan or start investing in Treasury bonds for my child’s future. I want to give my son the freedom to choose his path, whether it’s college or a career in trades or arts, without tying our investments to a volatile market. What’s your recommendation for the best potential with minimal risk? – Anxious for My Son’s Future

Dear Anxious,

It’s natural to worry about your child’s future, but focusing on finding the best potential with the lowest risk might only increase your anxiety. Instead, ask yourself, “What is my desired outcome?” In this case, it seems you want to provide your son with a versatile launch fund while steering clear of volatile investments.

Many people don’t know that 529 plans can be used for various types of qualified education expenses, not just college tuition. Your son could use a 529 plan to attend a trade school or an accredited arts high school. If there’s money left after he starts working, he could transfer up to $35,000 into a Roth IRA to kickstart his retirement savings.

As for market volatility, Treasury bonds and Treasury Inflation-Protected Securities (TIPS) are among the most stable investments. They offer relatively low returns but avoid the unpredictability of certain stocks or index funds. However, purchasing Treasury bonds can be complicated, which is why many opt for Treasury bond mutual funds.

You have several choices: establish a 529 plan and invest in a bond mutual fund; invest in bond mutual funds without a 529 plan, giving you more control over the funds; or create a CD ladder for predictable interest earnings. Consider the outcome you desire most—flexible funds for your son’s future or maximum returns without market exposure—and take action. Teach your son to do the same, and he’ll be well-prepared for whatever life has in store. – Financial Whiz guest columnist