4 smart ways to pay for college

September 14th, 2012 Cindy Mays

Deciding how to pay for college is a daunting task. One of the most important things to do is start saving as early as possible. Even if you’re only putting away $30 a month, saving money now will pay off when your children are ready to head to college.

When trying to decide what plan is best for you, sit down with your banker or personal investment advisor to determine the best alternative. Here are some options:

1. EE or I Bonds

This plan is a good option to help pay for college because the income is tax free.

Even better, the maximum investment of the account is high at $30,000 and requires a minimum investment of only $50 a year. The account, which is controlled by parents, or the bondholder, qualifies for tuition and fees only.


UGMA (Uniform Gift to Minor Act) and UTMA (Uniform Transfer to Minor Act) are savings plans for beneficiaries under the age of 14 that are in the child’s name with the parent as a custodian.

The first $750 of earnings is exempt from federal income taxes. There is no maximum investment, and the minimum investment varies by provider and the investment type. There is no income restriction on this account.

Parents also control this account, but money can be withdrawn by the beneficiary when he or she becomes of the legal age.

3. Coverdell ESA (Education Savings Account)

A Coverdell ESA is a tax-free growth and withdrawal account formerly known as an Education IRA.

The maximum account investment is up to $2,000 per beneficiary. The minimum investment varies by state. Tuition, room and board, books and other fees are covered by this savings account. There are income restrictions.

Like the options listed above, Coverdell ESAs are controlled by the parents. If the account isn’t used for educational purposes, it may be penalized. Elementary and secondary education expenses also apply to this account.

4. 529 Savings Plan

The 529 savings plan has become more and more popular because it is deductible at the state level.

Investment limits are extremely high – in some states up to $305,000. The minimum investment varies by state as well, but is normally very low, around $25 to $50 a month. There is no income restriction on a 529 savings plan.

The savings can go toward tuition, books, room and board, other supplies and equipment.

Cindy Mays

About the author

Cindy Mays is Market President at MidWestOne Bank. She works in the retail department, specializing in checking and savings accounts, auto loans and home equity loans.

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