Send your child to Harvard (Part 1)

I am a father of one and soon going to be father of two! As an Indian father, I can swear that excellent education is one of the top priorities for me. And I am sure it is like that for many parents. Todays education costs as we see them are mind-boggling and they are only going to go up, by the time our children become ready for college. So what can we do to help them.

As an investor when I thought about this, I realized I can increase the chances that I do not need to worry about my child's higher education expenses by doing somthing rather simple right now. Here I outline a strategy that can give you a fairly good shot of raising enough money that would make life quite easier for you and your child if he/she goes to pursue the elite education class.

Step 1 - Open an Educational (Coverdell) IRA account with your broker. Anybody can contribute into the account (after tax money) with the maximum of $2000 a year. Withdrawls can be made oenalty free and tax free towards any "qualified tution program". For detailed information refer to IRS Publication 970, Tax Benefits for Education chapters 7 and 8. The important thing to note is you do not pay a single dollar of tax on any and all gains earned on the money invested in the account (unless of course you withdraw money for non educational purposes or after the child reaches 30). Deposits can be made till the child turns 18. And if the child does not need the money it can be transferred to another Coverdell account for maybe a sibling, even the child's children or grandchildren!

Step 2 - Religiously fund the account with $2000 a year.

Step 3 - Invest these funds in potentially promising companies. Here you can choose the investments of your choice. You can either choose excellent profitable companies that have tremendous growth prospects or emerging technologies companies whose stocks are worth pennies. Given the fact that you would need your money in about 8-10 years you have a extremely good chance of getting a multifold return on your investments even if few of the investments that you do click.

In the second part of my blog I will suggest investment ideas and options for such a strategy. I myself am currently using this approach for my child and have already found it working great. I hope you find it of some help as well!