Six Ways to Save for Your Child's Education

Six Ways to Save for Your Child's Education

As a new parent, you have a lot on your mind and higher education probably isn't the first thing. But soon, that little baby will be going to college so it's important to start saving now. There are a number of options out there to get you started.

529 Plan - This plan is specifically for college savings. It may be used for tuition or other expenses like room and board. Contributions are deductible and earnings will be exempt from federal and some state taxes as long as they are used for your child's college costs.

Coverdell Education Savings - These are IRAs specifically used for education costs. While similar to a 529 plan, Coverdell funds can be used for education expenses before college. So, if you want to send your child to private school at some point, open this type of account.

Roth IRA - This is not ideal but you can withdraw funds from your retirement Roth to cover college costs. Earnings will be taxable and you may face additional penalties for withdrawing from an account open less than five years.

If money is tight, there are options that will help build some short-term savings until you're ready for something more.

High Interest Savings - Several financial institutions offer these accounts with much higher rates than a passbook. Some are attached to a credit or debit card. With these, each time you make a purchase, the amount is rounded to the nearest dollar and automatically deposited into the account.

Certificate of Deposit - Open a CD account at your local bank or through you credit union with as little as $100. Interest rates are low, but higher than other basic savings accounts. Also, you will still have a specific fund separate from your checking account so it's less tempting to use if you're short on money.

Money Market - These accounts can also be opened at your local bank for a larger amount than a traditional passbook but will yield more interest. You may also have the option of automatically depositing a portion of your paycheck into the account so you aren't tempted to hold back on saving

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