The 529 plan, a college savings account that is exempt for federal taxes is one option to consider when planning to invest in your children's educational future. However, there are some alternatives to consider, if the 529 plan isn't right for you.
Here are three savings alternatives to investing in a 529 plan:
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1. Coverdell Education Savings Account: For families earning less than $220,000 (filing jointly, or $110,000 individual) putting up to $2,000 a year, per can be contributed to a Coverdell Education Savings Account.
The money in these funds can also be used to pay for elementary and secondary education expenses. The money must be used before a beneficiary turns age 30. This plan is considered more flexible than others.
2. Put it in a Roth IRA: The advantage of this plan is that money put into a Roth IRA can be used for either college or retirement. Roth IRA's grow tax deferred — just like 529 plans. They are comprised of investments that are completely under the control of the owner of the investment.
One of the advantages of this option is that if a child decides not to go to college, the money can be used for the parent's retirement, rather than becoming a fully taxable income when not used for education.
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Another advantage of this plan is, if by the time your child goes to college you're at least 59 and a half years old, withdrawals from this account can be made tax free for educational expenses. Not only on the contributions, but also the earnings.
3. High Yield Sallie Mae Savings Account: For parents who are not comfortable with the risk of investments, the Sallie Mae high-yield savings account offers a higher than usual interest rate and FDIC insurance.
The current .80 percent is eight times higher than normal savings accounts and Sallie Mae offers 10 percent matching of funds contributed from the use of Uppromise spending.
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