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Saving for College

Even if you can get help in paying for college, start saving money, too. That way, you won't have to spend all your money on sending your child to college. Read this page to find out about savings accounts and plans.

You can save money in a regular savings account. Or you can save money in special accounts that can give you extra benefits:

Coverdell Education Savings Account

This is a savings account that lets you save money for sending your child to school, including college. Here are some reasons you might want one:

• You can save up to $2,000 for each student in this account per year.
• You can put money into this account every year until your child turns 18.
• You don't pay taxes on the money once you take it out if you use it for school.

And here are some reasons you might not want a Coverdell ESA:

• Having a Coverdell ESA may reduce the amount of money your child could get in financial aid.
• You have to use the money for education, like for tuition and books. If you don't, you'll have to pay taxes and a 10% fine.
• You have to use the money by the time your child turns 30. If you don't, you'll also have to pay taxes and fines on that money.

You can open a Coverdell ESA at a bank, a brokerage firm, or a mutual fund company. Read more about Coverdell ESA's.

529 prepaid tuition plan

A 529 prepaid tuition plan is a plan where you pay the tuition of a school now, so you don't have to pay a higher tuition later. Here are some reasons you might want a prepaid tuition plan:

• You pay lower tuition now.
• The money you save isn't taxed.

And here's why you might not want a prepaid tuition plan:

• If your child decides to go to a college not in the plan, you won't be able to use that money.

Each state's plan is different. You don't have to join the plan of the state you live in. Read what plans each state offers.

529 college savings plan

A 529 college savings plan lets you save money for your child's college. Here are some reasons you might want a 529 college savings plan:

• You don't have to pay taxes on the interest from this money when it's in the account, or when you take it out.
• You may get tax breaks for these accounts.
• Having a 529 college savings plan may not affect your financial aid that much. That's because the money is treated as your own, not your child's.
• You can join the 529 college savings plan of any state.

And here's why you might not want a 529 college savings plan:

• If you don't use the money for your child's education, then you'll have to pay taxes and a 10% fine.

Read about the different 529 college savings plans in each state.

Other plans

There are other ways you can save for your child's education. Read the College Board's website or talk with a financial advisor.

Next: Choosing a College

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