Six Ways To Save For College Early

Planning for your children’s financial future should begin as early as their birth.

The more you begin saving today, the less you need to borrow later on. There are imposed federal student loan limits, the more affordable borrowing source, as compared to private loans. Your best bet, if your child’s education is a priority as I am sure it is or will be, is to adopt a saving strategy.

Six ways to save for your child’s college education and take advantage of some income tax breaks are:


529 College Savings Plans

– A 529 plan is a college savings plan that offers tax-deferred savings and financial aid benefits. – Originally begun to save for college, the plans may now be used to save and invest for K-12 tuition at private schools, retaining their tax-deferred nature.


Coverdell Education Savings Account (ESAs)

These accounts are similar to 529 plans offering tax-free investment growth and tax free withdrawals when funds are spent on qualified education expenses. Like 529 plans the invested amounts are not limited to college and can be used not only for K-12 tuition but also expenses, including books.


Custodial accounts: Uniform Gifts to Minors Act (UGMA) or Uniform Transfers Minor Act (UTMA)

– Custodial accounts can be set up for each child if they are under the age of 14 years and managed by the parent until the child turns the age of majority, typically age 18 years unless stated otherwise.


Traditional IRAs

– Traditional IRAs, typically used for retirement savings, would normally incur a 10% penalty for withdrawals before age 59.5 years.


Invest in discount bonds

– Another way to save for college costs, is to invest in deep discount corporate, US government (Treasury) or municipal deep discount bonds. These bonds are often referred to zero coupon bonds because its owners are not collecting coupons twice a year.


Series EE Savings Bonds

– Savings bonds are sold by the federal government for half their value or $5,000 for maturity denominations of up to $10,000. – Like treasury bonds, they are safe based on their triple A rating.

Tuition costs are high but far more bearable if you save early. The more you save, the less you need to borrow on that day your child gets into college. Keep in mind that there are federal loan limits and private loans are more expensive.