Have you ever heard the term “529 plan”, but not known what one is? Simply put, a 529 is a savings plan operated by a state or an educational institution to help families put money aside now for the cost of college later.
It is named after section 529 of the internal revenue code, which created these types of savings plans in 1996. The great thing about a 529 is your money grows in a tax-advantaged account…so you save on your taxes while saving for college.
A lesser-known, but equally effective option, is a Coverdell Education Savings Account, or E-S-A. These are investment trust accounts that grow free of federal income tax. When your child heads off to college, the savings and growth can help pay for the expenses. And unlike 529 plans, there are even provisions in the e-s-a rules that allow you to pay for qualifying expenses in grade school and high school. E-S-As and 529s show that, like most things, there are benefits to starting to save early.