The first step is to save early for your child. The different plans below are not mutually exclusive. As always, check with your tax professional as to the respective tax implications.
1. 529 College Savings Plans
Your children’s financial future may begin as early as their birth. Establish an account once you have a social security number for your child in their name or initial in the parent’s name.
2. Coverdell Education Savings Account (ESAs)
These accounts are similar to 529 plans offering tax-free investment growth. You also can use tax-free withdrawals for qualified education costs.
3. Custodial accounts: Uniform Gifts to Minors Act (UGMA) or Uniform Transfers Minor Act (UTMA)
These types of accounts are typically for supplemental spending for college and not likely to go to tuition.
4. Traditional IRAs And Roth IRAs
You can use traditional IRAs, regularly used for tax-deferred retirement savings. Usually, you would incur a 10% penalty for withdrawals before 59.5 years.
5. Invest in Discount bonds
You can save for college costs by investing in deep discount corporate, US government (Treasury), or municipal deep discount bonds.