Paying for school is challenging. Fortunately, there are investments that provide advantages for families looking to save for education. These investment vehicles offer various advantages as well as some limitations on their use.
Two of the best-known education savings accounts are ESA and 529 Plans:
A Coverdell Education Savings Accounts (ESA) is a tax deferred account that can be established if a beneficiary is 18 years old or younger. These accounts can be used for K-12 schools as well as higher education. The funds must be used by the time the beneficiary is 30 years old to avoid taxes and fees. ESA accounts have contribution limits, and you should consult your financial professional when considering an ESA.
529 Plans allow you to invest for future educational expenses with taxes deferred. They are offered at the state level and different states offer different plans (you don’t necessarily have to live in a specific state to use it’s 529 Plan). Any 529 Plan should be reviewed with your financial professional to ensure it matches your investment objectives.
Other alternatives for saving for higher education include prepaid tuition plans, life insurance options, and UGMA/UTMA accounts (designed for minors). Education planning is important, complex, and should be done in consultation with your financial professional.