What Are the Best Ways to Save for College?
There are several savings plans that are specifically designed to help you and your
parents save for a college education. Ultimately, selecting the best way to save
for college depends on your own personal circumstances. Reviewing the following
options carefully will help you determine which method is best for you and your
family. And remember, the
cost of a college education
is always rising, so the sooner you start saving, the better!
529 Plans come in three types: Prepaid Tuition, Independent, and College Savings.
529 Prepaid Tuition Plan
A 529 Prepaid Tuition Plan allows you to lock in current tuition costs at qualified
public, in-state colleges. By locking in "today's" tuition rates, you won't have
to deal with rising college costs down the road.
Independent 529 Plan
The Independent 529 Plan is similar to the Prepaid Plan, but it is designed and
run by the 270+ private colleges that participate in this program. Unlike other
529 Plans, the account owner does not have to pay management fees since they are
paid for by the member colleges.
529 College Savings Plan
A 529 College Savings Plan can be used for tuition and other qualified expenses,
such as room and board, books, and supplies, at any qualified college. In a 529
College Savings Plan, your contributions are invested in mutual funds or other investments.
The value of your 529 College Savings Plan will go up or down based on the performance
of your funds.
to learn about 529 Plan contribution restrictions, withdrawal requirements, and
Coverdell Education Savings Account
A Coverdell Educational Savings Account (ESA) allows you to save and invest money
tax-free for qualified college expenses. You can also use a Coverdell ESA account
for certain elementary and secondary school expenses.
It is important to note that several Coverdell benefits are set to expire in 2012,
pending reauthorization from Congress. If no action is taken, elementary and secondary
school expenses would no longer be considered qualified expenses, contribution maximums
would decrease to $500 per year, and withdrawals would not be free from federal
taxes during years when the beneficiary also claims a
American Opportunity Tax Credit
Lifetime Learning Tax Credit.
to learn about Coverdell ESA contribution restrictions, withdrawal requirements,
and much more.
Other Savings Plans
In addition to 529 Plans and Coverdell ESAs, there are many other ways to save.
Be sure to research your options and find the savings method that is best for your
to learn about contribution restrictions, withdrawal requirements, and much more
for other savings plans.
How Do I Pick the Best Way for Me to Save?
Before making any investment, you should ask yourself a few questions to determine
which savings plan is best for you:
- How will this impact my eligibility for financial aid?
- How much is likely to be contributed?
- Are there any income, age, or other requirements for me as a contributor?
- Do I have an idea of what type of college I want to attend?
- Do I want to be able to reclaim the contributed funds for myself if necessary?
- What is my investment-risk comfort level?
for more information on how to choose the best savings plan for you.