Saving for College Pt. 3
Yesterday we talked about the 529 plan. The second savings vehicle for higher education is called the Coverdell Education Savings Accout (or ESA for short). The ESA can be an effective way to save for college. Just like the 529 it is post tax money and the interest it earns is tax deferred. There are some downsides compared to a 529. First, you can only put $2,000 dollars into it each year. So if you started late on saving for college it restricts you a little. Second, it can cause problems with certain deductions and tax credits. And third, the money in an ESA actually belongs to the student not the custodian of the account (usually the parents). The biggest advantage of the ESA is that is can be used to pay for primary and secondary schools. So if you want to send your kids to private school you can use the account for those expenses. Also your state determines how much you can have in a 529. So if you need more than that, say for a child that wants to be a doctor, you can use the ESA as an alternate means to save. You will need to make sure the fees for the ESA are not to high. The best place I have found for info is SavingForCollege.com. You can access their list of preferred ESA providers here.
In the final segment of this series I will show you how to get free money for college. It won’t pay for everything but it will certainly help.
