There are a variety of savings plans for college. Some examples of available college savings plans are via banks, gifts, Education IRAs (now referred to as Coverdell ESA), bonds, transfers, trusts, and the college itself. Trying to find the most beneficial college savings plan will likely require some time and discovery with a financial planner, banker, or financial aid advisor at your selected university. Savings plans may affect financial aid, so you will want to be extremely careful as you plan the best path of savings for your college career ahead.
- Education savings accounts also known as ESAs are available at banks. Coverdells are a great ESA option at banks if you don’t want to expose yourself to too much risk, because they are insured through the Federal Deposit Insurance Corporation (FDIC). You will want to check IRS publication 970for details on limitations of this type of savings account.
- A simple savings account does not have the same types of limitations that come with a structured ESA, but they also do not come with a very high rate of interest either.
- Savings bonds are issued by the United States government in denominations of $50-$10,000. They are purchased for half the face value and then accrue interest over the years until they mature.
- Trusts are also something that can be set up at a bank, but often come with high fees. A trust comes with tight restrictions by whomever sets up the trust and does not have to be set up solely for educational expenses. Trusts often come with high rates of taxation.
- A 529 savings plan lets you prepay all or part of the tuition at a particular school and may be converted to another public or private college down the road.
This is a sampling of what types of plans are available to you to save for college. Best practice is to consult a financial planner AND a college financial aid counselor to give you detailed advice about what is right for you.
Whatever you decide about saving for college, it is definitely going to put you in a much better financial situation when that freshman year finally comes.
