With college costs increasing faster than inflation, it can take many years to save for a portion of the total cost. However, planning ahead and saving specifically for college and other education expenses can have specific tax advantages. Consider the following investment saving options:
- 529 Plan – Offered by states, these plans offer tax-free growth of investments. There are no federal taxes on the withdrawal of money, if the funds are used for qualified tuition, room, board and other expenses. Additionally, some state plans, such as in Vermont, offer tax deductions for annual contributions.
- Coverdell Education Savings Account – Withdrawals are not taxed if used for qualified college or other education expenses. For the 2012 year, $2,000 can be contributed to an account per year per child
To learn more about college savings options, please visit the following Wall Street Journal Online article: smartmoney.com.