Saving for College

Gentle Readers:

Coverdell Education Savings Accounts are probably the easiest way to save money for college (rich people need not apply). Under this plan anyone can contribute to the fund as long as the total contributions from everyone are less than $2,000.00 per year. That isn’t $2,000.00 per person it’s $2,000.00 per student. IOW, Grandma, Auntie, Mom, and that worthless Stepfather can each contribute $500.00 apiece to meet the $2,000.00 maximum.

The contributions are NOT tax deductible. However, the earnings accumulate tax free and when the plan is cashed out for education expenses there is no tax. In addition, if your kid doesn’t use it all up the balance after graduation can be rolled tax free into the account of number two son or daughter. 

The money can be used for public or private school tuition from kindergarten through grad school.

The investment is simple and many banks and brokerages offer the program.

Some good information here.

State Sponsored 529 Plans are more complex but allow for more flexibility and larger contributions. These plans can also form part of a comprehensive estate tax plan as well.

As with ESA’s a variety of people may contribute, the earnings accumulate tax free, and when distributed for qualified education expenses there are no tax ramifications.

In general we think of these plans as savings plans for future education. However, sometimes there can be a little confusion because there is also a second type of plan authorized by IRC § 529, which is a prepaid tuition plan. These plans allow you to prepay tuition today at participating schools. By prepaying part or all of the tuition the parent is guaranteed today’s tuition rate regardless of what the tuition cost is when your child enrolls.

For comprehensive in-depth information about both plans as well as analysis of various state 529 programs go here.

Your broker, financial institution, or investment counselor may be an excellent source of information about these investments. Don’t have one? Email ESA at Winecommonsewer.com for a referral.

Disclaimer: TWC is not affiliated with any investment or banking institution. We offer referrals based upon accumulated experiences of many years and many clients. We offer no assurances except that you will be treated in a civilized and professional manner. Markets are volatile and there is no substitute for your own good judgment. We are all big people now and we should have learned long ago that YOU PAY YOUR MONEY AND YOU TAKE YOUR CHANCES.

As Ever,

The WC