Whats the best way to save for college — a 529 plan, a Coverdell education savings account or a Roth IRA?
A state-sponsored 529 plan gives you the straightest shot to a paid-up education. The plans set no limit on how much you can kick in each year, and, depending on the state, you can contribute as much as $305,000 without paying federal tax on the earnings if you use the money for qualified education expenses, such as college tuition. Most states won’t tax your earnings, either, and 24 states plus the District of Columbia will let you deduct your contributions if you invest in your home state’s plan. On the down side, 529 plans limit your investment options to the portfolios offered by each state. You’re allowed to change the investment mix within a plan or switch to another state plan only once a year.
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