How to Save For Your Kids' College

Start saving for college well before your children graduate from high school.

Sending your children off to college is an exciting time for most parents. Higher education brings unlimited opportunities for a better life and fulfilling career. Unfortunately, a child's choice of colleges may be limited as a result of a lack of parental planning early on. Start saving for the child's education when she is young so you'll be able to afford rising tuitions.

Instructions

1. Determine how much you can contribute to your child's college fund and not overly stress your finances. The key is to be consistent even if you're only putting aside a small amount every month.

2. Invest in an educational savings account, or ESA. An ESA has an annual contribution limit of $2,000. Your money grows tax-deferred in this type of account, meaning that distributions are tax-free if used for qualified educational expenses. Your income cannot exceed $110,000 annually as an individual or $220,000 as a couple to qualify for this plan.

3. Consider setting up a 529 plan. Your money grows tax-deferred in this type of account as well, but you may contribute up to $320,000 total, and there are no income restrictions. This would be a better plan for those who are able to contribute more than $2,000 per year. You may contribute up to $13,000 a year if you're single, or $26,000 as a married couple, without paying gift taxes.

Tips & Warnings

• There are other plans and savings strategies parents can use to save for college. I have just given you a couple of options to help in your research to determine what's best for your situation. I have included a few links below which all provide more detailed information.

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References

• Good Financial Cents; 4 Ways to Save For Your Kids' College Education; Jeff Rose

Resources

• Financial Resources
• Bara Business Services: 529 Plans vs. Coverdell Education Savings Accounts