529s allow you to save more than any other type of college savings account. Contribution limits may vary by state, but you can save more than $300,000 per beneficiary in some plans. If your child doesn’t attend college, you can change the account beneficiary. “529s are the way to go, because of the high contribution limits and tax-free growth,” said Theresa Rosen, a CFP with Prudence Financial in Sudbury, Mass.
Herb Lazar of New Jersey, is using 529 plans as the main leg of his college savings strategy for his three children, ages 16, 10, and 5. “I have $100 per kid taken directly from my paycheck and put into a 529,” Lazar said.
Lazar also has custodial accounts and a Coverdell for his kids, but these accounts were opened before 529 plans became so popular.
Coverdell Education Savings Account
Coverdell Education Savings Accounts, formerly known as Education IRAs, offer tax-deferred growth, and you can invest your contributions in mutual funds or other investments within the Coverdell. Under current law, withdrawals for qualified education expenses are tax-free.
There are income limitations and contribution limits that make Coverdells less attractive than 529 plans. If you qualify, you may set aside $2,000 per year per child. And you can save in a Coverdell until the April 15 tax filing deadline just as you can in your IRA. Says Rosen, “Coverdells are good, but strictly limited in the amounts that you can save.”
Penny Hastings, CA 11/14/08
If your teens have special talents...in music, drama, computer, science or sports...they have a greater chance of getting a scholarship to college. In all but the latter, scholarships are given by the college to reward past accomplishment and future potential, and to encourage a student with those skills to choose their college. With athletic scholarships (over $1.2 billion awarded in college sports scholarships each year!) they are awarded by the college, but through the athletic departments, mainly to recruit the best athletes possible for the college athletic program. In all cases, scholarships are the best of all financial aid options...they are free money and do not have to be repaid. Students with special talents should market themselves directly to the heads of the departments to indicate interest in their colleges. That will help start the recruiting process. Loans should only be considered after scholarship searches are exhausted.
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