Saving up for college to assist with expenses in higher education can be ideal plan. If your family starts early enough, you may be able to save a substantial amount for college before you’re ready to attend.
State 529 plans and Coverdell accounts are two ways to set aside money for college students that can grow tax-free. There are restrictions. Be sure to research your state’s plan so you know the maximum that can be contributed each year, and how much can be taken out at a time.
State 529: A 529 plan lets you save for college in either of two ways: by prepaying tuition and by savings plans. Click here for more information.
- Prepaid tuition plan
Purchases tuition credits at participating colleges and universities at current tuition prices, and use them when the student attends college. Only a few states offer prepaid tuition plans.
- 529 savings plan
More traditional savings plan where money grows tax-free. All states offer 529 plans, and you don’t have to live in a state to participate in that state’s plan.
Coverdell Education Savings Account: The Coverdell Education Savings Account (ESA), is like an individual retirement account (IRA), but for education.
- Covers all education
elementary, secondary, and higher education costs.
- Tax free
Money in the account grows tax-free, and isn’t taxed when it’s used for the beneficiary for tuition, fees, books, supplies, or equipment for school.
- Use with a 529
You can contribute to both a 529 plan and a Coverdell ESA for the same student in the same year.
Additional resources for getting for college can be found here.