College Savings Plans to Consider for Your Child’s Education
It’s important to invest in your child’s college savings early to ensure you have enough money put aside when the big day comes. There are a number of different-yet-beneficial ways to start to squirrel away money for college expenses.
The 529 College Savings Plan
The 529 college savings plan, a state- or educational institute-run plan, is a common first step for parents who research potential savings options. Most offer incentives and tax advantages to make saving for college easier, and while contributions to a 529 plan may not be deductible, earnings within a plan are usually not subject to federal or state tax.
Coverdell Educations Savings Plan (ESU)
A Coverdell Education Savings Plan (ESU) is similar to a 529 plan regarding incentives and tax advantages, but an ESU isn’t limited to higher education and offers a wider range of investment options. That said, there are income limits associated with ESUs and contributions made are not revocable if you have an emergency and suddenly need funds.
Other Traditional College Savings Methods
Which college savings method you choose depends on your savings goals, and less traditional but still common savings options are available.
- Work with a financial planner – This is just like saving for a down payment or retirement. College savings plans can benefit from the expertise and guidance of a financial professional.
- General investment account – These offer earning potential and high contribution limits with total flexibility.
- Roth IRA – Funds can be withdrawn from a Roth IRA penalty-free for college expenses, and there’s the added bonus of also being able to use the money to save for retirement.
- Special savings account – Open a dedicated account like a Special Share Savings account to keep money for college separate from your spending money.
Save Early and Often
Depending on your savings method of choice, your child’s college fund will grow significantly if you save early and often. Establish a savings routine and save more when possible. Automate savings contributions and consider your investment options with care.