[USER]

I’ve decided to stop funding my kids’ 529s. They are aged 10 and 7. I’ve funded them both since they were born- every month. I believe with expected ROI, they will both have about 90k in each account by the time they are graduating HS.

We live in California that does not have a tax deduction for these contributions and at the moment, not allowing the Roth rollover. I want to set up a second brokerage account that is just for their college needs should they need it. We currently use E-trade for my husband and I.

My question is…. We put $100 in a SoFi account last fall when Rakuten was having a big bonus with them. Is there anything inherently wrong with using SoFi for a separate/new brokerage account for my kids? Can I just keep finding that? Or should I go through the hassle of shutting it down and setting up a brokerage account somehow else? Thanks for any insight!

[Jennifer]

It’s not just the tax deduction that advantages these accounts. Your gains are not taxed if you use it for education.

I think CA public will probably be close to $45k per year by the time you need it. You can sell investments inside a 529 without recognizing gains.

You will get taxed investing in a brokerage.

[Frank]

Don’t use banks for brokerage needs. Use a proper brokerage.

And don’t use plumbers to do electrical work.

[Kenny]

Sofi is a good bank for high yield savings accounts and their Vault feature to split up your savings for goals. That being said, I’ve not been impressed with their investment products. I think you’d be better off going with Fidelity, Schwab or Vanguard to have a separate brokerage account to invest money for the kids.

I’d also check with a CPA or tax planner about the best way to do that and especially any impact it would have on the kids’ college finances like financial aid before doing that.

[Nicole]

California allows the roll-over up to 35k, but the earnings will be taxed at state income tax + 2.5% so not the greatest deal.

[Wendi]

Just an FYI that CA doesn’t prevent the Roth IRA rollover. It would just be considered a non-qualified withdrawal so any earnings would be subject to income tax and the 2.5% CA specific penalty.

[Author]

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