There are several savings vehicles that parents can use to plan for their child's college expenses. Some of the most popular options include:
College savings plans or 529 plans: These are state-sponsored investment plans that are designed specifically for higher education expenses. They offer tax benefits and flexible investment options, and the money can be used to pay for tuition, fees, room and board, and other qualified education expenses.
Coverdell Education Savings Accounts (ESA): This is a tax-advantaged savings account that can be used to pay for qualified education expenses, including college expenses. The contributions to a Coverdell ESA are not tax-deductible, but the investment growth and withdrawals for education expenses are tax-free.
UGMA/UTMA accounts: These are custodial accounts that can be used to save and invest money for a minor's future expenses, including college. The minor is the beneficiary of the account and will have control over the funds when they reach the age of majority.
Roth IRA: A Roth IRA is an individual retirement account that allows tax-free withdrawals for qualified education expenses. While it is typically used as a retirement savings vehicle, it can also be a useful tool for saving for college.
Savings bonds: Series EE and Series I savings bonds are low-risk savings instruments issued by the U.S. government. They can be used to pay for qualified higher education expenses, and the interest earned on the bonds is exempt from federal income
It's also a good idea to start saving early and consistently to take advantage of the power of compound interest. Consulting with a financial advisor or tax professional can also help you determine the best savings strategy for your family's needs and goals as this post is for general information purpose only. Reach out for more details here