Saving for college? Put
all your tools to work.
(cont.)
Knowing where to
put college funds can be tricky, because of the variety of investments
and multiplicity of vendors. "It's almost like a game or puzzle," Chan
says.
The Coverdell savings account probably causes the least confusion
because of a high public awareness of IRAs in general. That's fortunate,
because an education IRA generally is regarded as a good complement to
the popular 529 plans.
 |
By having both, says Jay Stillman, a consultant with Saving for
college.com, a Web site founded by 529 advocate and author Joseph L.
Hurley, parents can save for all phases of a child's education. And, he
adds, because Coverdell IRA funds can be rolled over into a 529 without
penalty, parents can sidestep its principal drawbacks -- the age limit
of 30 and the fact that the IRA counts as the child's asset, which can
adversely affect his ability to receive need-based loans.
Stillman says a Coverdell account may be the best single investment
option for parents whose income is below $50,000. The accounts are
easier and less expensive to set up than 529 plans. Also, people in that
income bracket probably wouldn't be able to take advantage of the higher
lifetime contributions allowed under a 529, which range from $110,000 to
$305,000 depending on the state and the investor's income.
Use
the Internet
Though
navigating the college-investment marketplace can be tricky, Chan says
parents who are willing to do their homework can become relatively
well-informed. The Internet makes the process easier, with literally
thousands of sites devoted to financing higher education.
Chan, who has written a comprehensive look at the tax deductions and
credits available to students and their parents, says Internal Revenue
Service Publication 970 is a good source of information. Another
especially valuable site is the College Planning Center on the American
Funds Web site, where the advantages of various investments are
compared. These are just the tip of the informational iceberg.
Parents who find the volume of available information too daunting should
consider a one-time consultation with a financial planner. But they
should make certain that the planner has expertise in educational
investing.
"Some know it cold; others mostly work with retirees," says Chan, a
certified financial planner.
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