 TITLE: How to Save Money for College CONTENT: Types of College Savings Plans\n------------------------------\nThere are several options when saving for your child's college. The best way to save for their education depends on your situation and what works best for you. Some options give you the chance to claim a state tax deduction, while others offer different types of favorable tax treatment. Still others give you the option to name a different beneficiary if your child decides not to go the college route.\nHere are five options to consider as you save for your child's college costs.\n### 1\\. 529 Plan\nOne of the best ways to save for your child is to use a 529 plan. With a 529, you contribute money to an investment account and the money grows tax-free, as long as you withdraw it for qualified education expenses.\nThe pluses of 529 accounts are plenty. You won't pay taxes on earnings while the fund grows or when you take out money to pay for college. And, depending on your state, you might receive a state income tax deduction for your contributions (there's no federal tax deduction).\nWith 529 plans, you are in control of the fund, unlike some custodial accounts that turn over accumulated funds to the student once they reach legal age. And there's some flexibility with a 529. If your child decides not to go to college, you can change the beneficiary of the account so that someone else can benefit.\nThe downside to 529 plans is that like with any investment account, you can lose money. Additionally, if you withdraw money for non-qualified costs, you will pay a penalty. But the positives outweigh the negatives for most people considering 529 plans.\n### 2\\. Coverdell Education Savings Account (ESA)\nAnother option is to use the Coverdell ESA. Like with the 529 plan, you make contributions with after-tax money, but it grows tax-free, and earnings aren't taxed when they're distributed for qualified expenses. You do have to be careful, though. The funds in a Coverdell ESA must be used—or rolled over to another beneficiary—by age 30.\nWith Coverdell ESAs, you're limited to contributions of $2,000 per year, and there are income limits as well. Even though you can't contribute as much to a Coverdell account as to a 529, there's a little more flexibility in what educational expenses qualify.\n### 3\\. Roth IRA\nBelieve it or not, you can use savings in a Roth IRA to pay for your child's college. As long as you meet the income requirements and you don't contribute more the allowed amount, this can be a good way to save for your child's college education.\nYou can withdraw money, up to the amount you contributed originally, to pay for qualified education expenses without penalty—as long as the account has been in existence for at least five years. So, if you've contributed $20,000 to a Roth IRA and it's grown to $35,000, you can withdraw up to $20,000 without penalty to pay for school for your child.\nOne of the advantages to using a Roth IRA is that it's your money, so if your child decides not to attend school, you can just let it grow and use it for retirement down the road.\nA downside to using Roth money, though, is that it will count as income on your taxes the year after you use it for college expenses, potentially reducing your child's financial aid that year. As a result, some families use other funds first and withdraw from the Roth IRA for the final year of schooling.\n#### What About a Traditional IRA?\nIt's also possible to withdraw money from a traditional IRA to pay for your child's college expenses. However, while you may avoid the 10% early withdrawal penalty, you'll still have to pay taxes on the amount you take out—and you no longer have that amount to grow and earn interest toward your retirement. Experts recommend exhausting all other options before taking money out of your primary retirement accounts.\n### 4\\. Traditional Savings Account\nYou could also use a traditional savings account to save for college. When you go this route, you can use the money for anything. So if your child decides not to attend college, you're not stuck trying to find another qualified beneficiary.\nThe main downside to using a traditional savings account to save for your child's college education is that the returns are generally very low. You won't see the account growth that typically comes with an investment account, like a 529 plan. Additionally, you'll be taxed on the interest you earn.\nAnother savings vehicle to be careful of is using a UGMA\/UTMA account. When you open one of these accounts and save on behalf of your child, those funds are counted as student assets for the purpose of financial aid. Student assets have a bigger impact on reducing the amount of aid received than parental assets, so it's important to think this through before moving forward.\n### 5\\. Taxable Investment Account\nAs with an IRA or a 529 plan, a taxable investment account allows you to take advantage of faster growth and higher returns than you'd see with a Coverdell ESA or a traditional savings account.\nThe money in investment accounts is, of course, completely flexible. You can use it for whatever you want, without worrying about restrictions. However, there are some downsides that might not make this the best way to save for your child. Some things to keep in mind include:\n*   You'll pay capital gains tax when you withdraw the money.\n*   The money in your account will affect how much your child qualifies for in student aid.\n*   There are no state tax breaks for contributions.\nBefore you decide on the best way to save for your child's college education, consider your options and your financial situation.\nSaving for your child's college can feel overwhelming, but once you get started, you may find it's easier than you thought it would be. It's important to remember that you have several options—in fact, you can use a combination of strategies to create a college savings plan that works for your family. END