SAN ANTONIO — The cost of attending college is about as much as a luxury car. If you’re thinking about saving for your child’s education, here are 5 ways to start.
1. Custodial account
“These were very popular in the 1980’s and you literally, would have the parent or grandparent be a custodian on the account for the child or grandchild,” explained Karl Eggerss, senior wealth advisor and partner of Covenant. “A big negative of a custodial account, which is often referred to as a UGMA or UTMA, is the fact that at the age of 18 in Texas, the child has complete control of the investments in the account regardless of what it’s used for.”
2. Coverdell Education Savings Account
"They’re very flexible. What I don’t like about them is that they have a low limit. You can only put away $2,000 a year. If you wanted to save more, you would have to look at a different avenue,” said Eggerss.
3. Roth IRA
“We always think of ROTH IRA’s in terms of saving for retirement but they can used for education as well. So that may be something to start. And actually, a parent can start one for themselves and transfer it to their child at some point. You may be able to start one for an unborn child. Then, once that child is born, you can transfer your ROTH IRA to a child,” explains Eggerss.
4. 529 plan
“This is something you can put money into after tax. But it grows tax-free if the money is used for college down the road. It can be transferred within the family. If one child doesn’t go to college, the other one can use that money. It can be used for trade school so it’s pretty flexible,” he said.
5. Personal account
“If the child gets a scholarship and doesn’t need that money, or you don’t want them to have that money, you could use it for your own retirement. It’s always in your own name. It may not have all of the tax benefits like some of the other ones previously mentioned but it gives you 100% control over the money,” said Eggerss.