529 Plans Aren't Your Only Long-Term College Savings Option
With all the focus on 529 College Savings Plans, there are other options which get overlooked when parents sit down and consider funding their child's higher education. There are other choices available, however, and each has some unique differences from the 529 plan.
Some Alternatives to 529 Colleges Savings Plans
- The Individual Retirement Account (IRA)
- The Coverdell Education Savings Account
The Individual Retirement Account (IRA)
If you are not currently using an IRA as part of your own retirement planning, then establishing one now to pay for your student's college education could be a good way to go. The real advantage of using an IRA for college is that they currently do not have to be reported as an asset on your FAFSA form so they do not increase your Expected Family Contribution. There may be penalties associated with early withdrawal from an IRA, but these could potentially be nullified or offset by the savings you realize from reductions in your EFC.
The Coverdell Education Savings Account
Another college savings option which many people have not heard of is the Coverdell Education Savings Account, formerly called the Education IRA. These college savings plans are self-directed (you can choose where you want the money invested) have superior flexibility compared to other dedicated college savings plans (you can use the money at any education institution of your choosing) and can be used for either primary or college education. Their shortcoming is you can only contribute $2,000 per year per account.