Investment Programs for Parents Saving for a Child's College Education

A college education is quickly becoming more expensive than buying a house. With costs continually increasing, it is no longer practical to only save for college through traditional savings accounts. Instead you will need to combine traditional savings with investment activities in order to keep up with rising education costs, and/or take advantage of state sponsored tuition savings programs.

Government Savings Bond

One of the most trusted college savings instrument is the government savings bond. These investment products offer a doubling of your investment in 20 years. These are good to purchase when a child is first born; however, in order for the child to use the proceeds from the bond for college expenses, bonds bought after the child is two will need to be cashed out before they are completely mature, and as a result they will have to pay early withdrawal fees and the bond won't be worth as much as if they were able to wait until they were fully mature. You can increase the amount of bond money that your child is able to cash out for college by asking family and friends to buy savings bonds instead of, or in lieu of, birthday and Christmas gifts.

For more information about Savings Bonds please visit:

U.S. Treasury Direct
http://www.savingsbonds.gov

Education IRA (ESA) or Coverdell Education Savings Account

This savings account program provides a tax advantage to participants. How it works is that once you set up your ESA you make contributions up to $2,000 per year. You pay taxes on the money that you deposit, however, when you are ready to make a withdrawal you don't have to pay taxes on the interest or principle that you take out, as long as the amount withdrawn is equal to your qualifying educational expenses. You can use this account to pay for educational expenses related to primary, and secondary education expenses. Finally, you should note that this account is only an option if your annual gross income is less than $190,000 for a joint return or $95,000 for a single return, and the money in the account must be used before the beneficiary turns 30 years of age.

529 Plans