Four Basic Ways to Save for College, Part 1

Here's a handy interactive chart from MSNBC on the four major ways to save for college expenses. Over the next few days, I'll highlight each one. Here we go with the first option:

Taxable account

The least restrictive way to save for college is to open an account in your name and save and invest in stocks, bonds mutual funds -- or whatever other form of investment you like. You'll pay taxes, at your rate, on capital gains and income as they're incurred. You'll get no tax breaks on qualified education expenses. 

Limitations

Contribution limits -- none
Income limits -- no
Use of funds -- none

Taxes

On investments -- Paid annually.
On withdrawals -- Earnings taxed at your rate.

Changes

Beneficiary -- No beneficiary named.
Investments -- Allowed any time, but taxes may apply.
Switch money back to your name -- Already in your name.

I have part of my kids' college funds in a taxable account, primarily because I need the flexibility to shift the money if needed. I realize I'm taking a tax hit, but the flexibility is worth it to me.

Click here to read part 2 of this series.

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Comments

[Finance Help Comment]

Hi,
Those are some great ways to save for college. I am at college now, and I am looking at financial ways of paying back my student loan and planning for my kids university.

At a website called free finance tips [http://www.free-finance-tips.com], they have loads of great free financial help there.

I hope that is useful for you, it has been for me and my approach to post university life.
Nick

[Tarah]

I'm a huge fan of having a taxable account for college. That's what my parents did for me, and it was really nice because they gave me ownership of the account as soon as I started babysitting at 12 years old. That way, if I decided I didn't want to go to college, I could still use it for a downpayment on a house or something. As it is, neither my husband nor I are using our college education (saleswoman and mechanic), so I'd like to keep the option open for our children to use it for other puposes, just in case.