SEATTLE — When it comes to saving for college for your kids, there are a few different planning options.  But how do you know which plan is right for you?

Financial expert Justin Sinnott of Charles Schwab banking has some advice: 

How many college plans are there? 

Sinnott: You have the traditional 529 Plan, which is generally set up by the state that you live in. You can also save in a custodial account, and you also have what’s called an education savings account. 

Can you give us any highlights of those three? 

Sinnott: If you are utilizing a 529 Plan, that money has to be specifically for higher education or anything that goes specific to college-- for example, tuition, books, room and board, a computer, you know anything that’s required by the school. 

With regard to a custodial account, it’s a little bit more broad in your options, but you have to keep in mind that as soon as that child reaches the age of majority--18, 21, or 25 depending upon your state--they take back control of that money. So parents have to be very cognizant of getting that child ready to have that responsibility at that said time because that kid could use the money for a brand new car or an expensive vacation. 

The Coverdell or the Education Savings Account-- they have a little bit lower minimum. You can only put in $2,000 per year, but the nice thing about those is that you can use them for not only college education, but also your primary or secondary education or both, so like for private elementary school or private high school.

How do we really know which one is best for us?

Sinnott: Unfortunately it depends. In many cases, we will use a little bit of both or we can choose one depending upon the situation. One thing I’ll add though, with regard to every one of these plans, it’s not just a contribution that needs to be made by the parent. The nice thing about these education savings tools is that others, friends, family, etc. can also make contributions for the benefit of that individual.
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You may want to ask yourself -- what are your primary goals? That usually helps people select the right savings plans. 

  • 529 college savings plan: Save for college   

  • Education savings account (Coverdell): Supplement education expenses 

  • Custodial account: Teach a child about investing

 Maximizing the effect of your contributions

  • Once you’ve identified which savings plan best fits your needs, it is important to then consider the tax advantages and contribution limits of each to make the most of your savings. Again, keep in mind that each savings plan has different considerations. Charles Schwab financing has a chart outlining general differences. However, it is always best to consult a financial advisor.

College savings plans comparison
Charles Schwab

Additional college-related costs

There are a lot of flexible expenses to consider as you outline potential costs and create a college budget. Here are factors to consider:

  • Living arrangements: Think about all considerations and associated costs when choosing between a dorm and an apartment. For example, a dorm includes utilities, while an apartment usually does not. If your family lives within commuting distance of the school, having your child live at home can significantly cut costs.

  • Books: College textbooks can be incredibly expensive. Encourage your student to buy used books when possible and to take good care of them so they can be sold back at the end of each semester.

  • Food: If your teen lives on campus, look at the meal plans offered by the school that could save on food costs.

  • Insurance: Be sure to find out whether your child is still covered under your health, auto and other insurance plans. If not, check to see if the college offers plans at affordable prices.

For additional flexible costs and how to create a budget with your teen, you can visit Schwab's MoneyWise site.

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