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Online Investing Hacks by Bonnie Biafore

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Hack #92. Let Me Count the Ways to Save for College

Who says the government isn’t on your side? Federal law and state savings programs provide liberal tax breaks and multiple ways to save for college.

For parents with kids destined for college, the 2001 Tax Relief Act was like the best Christmas and birthday presents rolled into one. A sweet deal to start with, college savings plans got even sweeter. Now, you can save money for college through a Section 529 Plan and withdraw money tax-free through 2010. Legislation enhanced Coverdell Savings Accounts, raising contribution limits and relaxing rules. Take advantage of these college savings options to make the most of your college savings:

Section 529 prepaid tuition plan

Sponsored by states and some private colleges, you prepay future tuition and fees at today’s prices. The cost depends on the age of the child enrolled.

Warning

Before you sign up for a Section 529 prepaid tuition plan, ask some hard questions about the health of the plan. Some states have cut off or raised the cost of enrollment in prepaid plans due to declining investment results and spiraling tuition costs. If the plan you use goes belly-up and can’t meet its obligations, you might lose the money you contributed and have to start over.

In addition, this type of plan might lock your child into a school that he doesn’t want to attend.

Section 529 college savings plan

Sponsored by states, you invest in a mutual fund-like account [Hack #93] . Results depend on the performance ...

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