Saving for College 101

These days, the cost of higher education can exceed $100,000 per child. However, there are several great ways to save up.

Education Savings Account (ESA)

An education savings account may offer federal tax breaks and can be used for any level of education from kindergarten onward. However, since ESAs have a contribution limit of $2,000 per year, starting early is key. Assuming a hypothetical 7% return, a college-minded saver would have over $70,000 by the time their newborn graduates high school. Custodial amounts under UGMA or UTMA allow unlimited contributions, letting you save for any purpose that benefits a child, including education. These accounts can be part of a sound estate planning strategy. They do grow over time but may reduce financial aid eligibility. Once the child reaches adulthood, they can use the funds for any purpose, without penalty, even if it's not for college.

529 College Savings Plan

A 529 College Savings Plan lets you retain full control of the funds and reassign beneficiaries. 529s grow tax deferred and can offer attractive federal and state tax benefits depending on where you live. Plans do vary from state to state. Since you're free to choose the one that fits your needs, it's wise to shop around.

Saving for college can be a daunting task. However, you can be better prepared for the future with some wise preparation.