College Savings Accounts

College savings accounts are still a fairly new concept. These are accounts which can be opened by anyone who wants to pay for a college education. A beneficiary must be named for the account and it must be opened as a designated college savings account (see your banker or investment consultant for more details on how to open a college saving account.)

There are a few different types of college savings accounts, one of which is the Coverdell Education Saving Account. The money put into these accounts is not tax deductible, but it can grow tax-free. This means that the interest made on the deposits in the account is not reported to the IRS as income. However, the government puts a limit of $2,000 a year on these types of accounts and money is taxed once it is withdrawn to actually pay for college.

Another type of college savings account is the 529 Qualified Tuition Program. This type of account works along the same lines as a Coverdell Account, but distributions can be taken out tax-free for tuition payments before 2011.

U.S. Savings Bonds can also be used toward financing an education. These college savings accounts are most often used by parents or grandparents who want to plan ahead for the next generation. It is a great way to watch small contributions grow into a nest egg for kids and grandchildren.