Saving Money for College

College tuition is a big expense that many families are not prepared for. Tuition prices typically rise by as much at five percent each year, so it is a good idea to begin an educational savings plan early. Although saving for college can seem overwhelming, there are many college savings plans in place to help parents save over time or grow savings by investing in stocks and bonds.

State Sponsored 529 Saving Plans

A 529 Savings Plan is a state sponsored college savings program with an added advantage of tax benefits. Monies that are contributed to a 529 plan are allowed to grow tax deferred until withdrawal. As long as the money is used toward the tuition of a college education, there are no taxes charged when monies are withdrawn.
Almost every state has at least one of these types of plans but they may vary slightly from state to state. While contributions to a 529 plan are not tax deductible, in some states a portion of what is saved can be written off. Disadvantages reported by some contributors are the steep brokerage and annual fees.

Coverdell Education Savings Account

Similar to some 529 saving plans, a Coverdell ESA is an educational savings program that can be used for college. A nice advantage offered by a Coverdell ESA is monies can be withdrawn to fund private elementary or high school.
If parents wish to choose a Coverdell ESA, they should begin saving early. Maximum contributions to this college savings plan cannot exceed $2000 annually. However, low maintenance fees make these savings plans more popular than most 529 plans.

Educational Saving Bonds

Educational Savings Bonds are virtually risk-free and offer similar tax advantages as other college saving programs. Because bonds cannot be purchased until the age of twenty-four, bonds need to be purchased in a parent’s name with the child being the beneficiary of the bond. A minimum of $50 is needed to invest and bonds usually mature to full face value after 17 years.

Standard Savings Accounts

Many banks and lending institutions offer a variety of savings accounts for children. While most standard savings accounts do not offer any tax advantages, this type of college savings account is valuable in teaching children financial responsibility. When choosing a savings account for a child, look for one that has earns at least 1.5% interest and has no annual maintenance fees. Another advantage of a standard savings account is that any money deposited into it (under $100,000) is insured by the FDIC.