Tips on saving for college

You can save money for college with the help of state-sponsored savings accounts and extra-curricular jobs.

If you have aspirations of attending college or sending a child to college, you should know your options for saving. Paying for college tuition can cost a great deal of money, but in today’s competitive job market, there’s greater demand than ever to have a degree. Here are some ideas to consider when saving for college:

529 Plans
These plans, also known as qualified tuition programs, are state-sponsored savings accounts that are tax-free when you withdraw money to pay for college tuition. 529 plans do not have annual limits, though there may be an overall limit per beneficiary. There are two types of plans:

• The prepaid tuition plan: pays for a certain number of credit hours at a particular university. The payment is for future semesters at the current cost of tuition. While you are guaranteed a fixed number of semesters at the particular university for which you prepay, not all universities participate in this type of program.
• The savings plan: allows you to invest your money and potentially make it grow. The money in a savings plan can be used at any accredited university, but the amount you save for college will depend on how well the financial market does.

Extra-curricular jobs
If you are a student who wishes to contribute to college tuition expenses, you may want to find an extra-curricular job. Or, if you are a parent, you may want to encourage your children to get a job to start saving for college. Jobs can teach children a great deal about the real world and how to budget their finances. But, getting a job during the school year can backfire if students find themselves working more than studying. If you or your child is working to help finance education, limits should be set regarding the number of hours spent at work so that scholastic performance is not compromised.

Coverdell Education Savings Account (ESA)
These accounts were formerly known as Education IRAs. Savings in Coverdell ESAs are tax-free and have an annual maximum of $2,000 per student. Until the beneficiary reaches the age of majority, the investments in the account are controlled by a responsible adult. The funds in a Coverdell ESA generally must be used by the time the beneficiary reaches 30 years of age, but the money is transferable.

You can research these and other college savings plans yourself, or if you’re having trouble deciding the best way to save, you may want to consult a financial planner. While hiring a professional will cost money, it can be very helpful when it comes to navigating some of the plans and accounts that are available. Remember, the best way to start saving for college tuition is by educating yourself and executing a plan.

Related Topics:

• Federal student loans
• Guide to paying for college
• Private student loans
• Saving and paying for college