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Home › Articles › Education › College Countdown

College Countdown

Start Saving for College When Your Child is Born

By Deborah Ng

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Diane Musto of Hillsborough, N.J., began saving when her children were first born. She and her husband, Joe, a financial analyst, already have 529 college savings plans in place for their children, Andrew, 2, and Theresa, 6 months. "I think it's irresponsible not to save for your child's education provided you have the financial means to do so," Musto says. "You always want your children to have more opportunities than you had. Given that the costs of college are rising at incredible rates, it's a pretty safe bet your children will not have the money to pay for it themselves."

Musto isn't alone in her thinking either. When faced with the staggering statistics, parents all over the country have opened accounts on behalf of their children, hoping to give them a chance at affordable higher education.

In addition to the 529, there are several other options for parents looking to invest in a college savings plan:

  • The Coverdell – A Coverdell account allows up to $2,000 per year deposited into each beneficiary's account. The Coverdell allows for tax-deferred savings, and if the money is used exclusively for school, it remains tax-free. The Coverdell can be used by beneficiaries 18 and younger. Only those with special needs qualify for a Coverdell if they're over 18.
  • Roth IRA – Tax- and penalty-free withdrawals can be made from a Roth IRA if the money is being used to fund a college education.
  • UGMAs and UTMAs – Custodial accounts are also a good way to save. An account is saved in the child's name with a parent or guardian named as custodian of that account. The funds don't necessarily have to be used for college, however, and the money can be collected as soon as the child reaches legal age. Up to $11,000 can be contributed annually; after that a gift tax comes into play. It's important to start saving early because there are tax benefits for children under the age of 14.


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