College Savings Accounts

Thinking about saving money for the future these days is a bit like getting your child to eat veggies after they turn two.  Both scenarios can be difficult for parents, despite the fact that both really are in the best interest of all parties involved.  Eventually, though, Junior will eat something of solid nutritional value on his own without your prompting, hair pulling, or begging.  Saving some of your income can also be painless, easy, and certainly beneficial.  In our ongoing series of great accounts for your money, we bring you a bit on College Savings Accounts. 

We know, you don't need another reminder about how expensive college is; it seems every year there are stories that bombard us with the rise of higher education costs.  Sure, there is financial aid (well, at least there is today; tomorrow - who knows?) and scholarships that can certainly help with tuition, books and the like.  However, some proactive work on your part now may make your little scholar's transition from high school to college that much less financially painful. 


The most common type of a College Savings Account out there is the 529, but there are a wide variety of types. The two largest distinctions are prepaid plans vs. savings plans.

Prepaid Plans

A prepaid plan will let you pay ahead for tuition at today's rates and will help you lock in that rate despite any hikes it might take in the future. Given the rate of growth in college costs, this can sound appealing. The problem is that you can't be sure where you kid will want to go to school, and by choosing this kind of plan you're pretty much locking in certain choices.

Savings Plans

On the other hand, if you like the idea of socking away some money, having it grow, and spending it tax-free on college tuition, books, and boarding, then a regular 529 college savings plan might be worth a deeper look. These plans are more like a 401(k) for college funds. These types of funds don't have a lot of uniformity, so be sure to look deeper before making any decisions.

What's in it for Me?

There are some distinct advantages for considering a 529 plan.  First, putting money aside now for Junior's college years puts you ahead of the game when high school is over and the first tuition bill arrives.  Having money for a specific purpose at the right time is always a good thing. 

Another nifty feature about a 529 plan is that your money grows tax free when in the account, and when it comes time to buy those amazingly expensive biology and lit books, you'll be able to spend your wisely saved money without paying taxes!

Sign Me Up!

Of course, 529 plans are as varied as a typical college freshman class.  You can choose from a variety of ways on how you'd like your money to grow (fixed shares of stocks and bonds, shares that change, or individual strategy for investing), and you'll find many companies out there who offer these college savings accounts.  Finding the right manager for your plan and funds will take a bit of homework on your part.

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Anonymous's picture

MoneyCone wrote:

Tue, 02/01/2011 - 12:36 Comment #: 1

Considering how expensive college is getting, it would be wise to have some savings account set aside for your kids. As you mention, 529s are excellent as a tax-deferred account. That way, you won't even think of dipping into your retirement account for your kids' education!

Anonymous's picture

Insurance Advisor wrote:

Tue, 02/01/2011 - 19:30 Comment #: 2

Melinda, thanks for the reminder about saving for college. Not that I needed it, but I needed it. One thing that has held me back from 529 plans is (as I understand it) the investment choices can only be modified once per year -- kind of scary in this topsy-turvy economy.

Does anyone know if this is true, and if so, is it really a big deal?

Again, thanks for the post. You've reminded me that I must take some action to save for my children's college tuition....clock is ticking!

Anonymous's picture

Kevin wrote:

Tue, 02/01/2011 - 23:11 Comment #: 3

Hi Melinda - I recently invested in a 529 for my kids and conducted a fair amount of research. In the end I chose the Vanguard 529 (Nevada) Plan for its flexibility and low cost structure. Worth considering for those who are looking at various plans.
Thanks for the post!

Anonymous's picture

retirebyforty wrote:

Tue, 02/01/2011 - 23:23 Comment #: 4

Can you write a follow up to share which state has good 529?
I want to open a saving plan later this year and don't know if I should open in my state or another state. From what I understand, I can deduct tax if it's my state, but I don't know about another state. I heard Utah has a good plan.

Anonymous's picture

Anonymous wrote:

Sun, 02/20/2011 - 17:11 Comment #: 5

I agree with retirebyforty - what's the deal with all the differing state 529 plans? I know that's a big topic so we'll be patient :-)

Anonymous's picture

Wizelle Y. wrote:

Thu, 05/05/2011 - 04:38 Comment #: 6

The earlier you begin to save for a child's college education, the better. Significant growth comes from compound personal savings that have been given time. With a 529 college personal savings plan in place and tax-free, you are able to be on your way. Particularly if a child does not qualify for scholarships, a 529 plan could be quite useful. I found this here: 529 college savings plans are a better deal than ever

Anonymous's picture

Living Simplistically wrote:

Fri, 09/30/2011 - 19:58 Comment #: 7

Thank you for your submission to A Carnival for Saving and Making Money hosted by Living Simplistically!

Christa Palm's picture

Christa Palm wrote:

Mon, 10/03/2011 - 17:51 Comment #: 8

Thank you, Living Simplistically!

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