• You can set aside up to $300,000 per child, depending upon the plan
• No time or age limit--so your little darling can still be pursuing a BA at age 36 and still be funded, unlike the Coverdell
• You can set up a 529 for yourself at any age if you are planning to attend college or graduate school in the future, or transfer it to another beneficiary in your family

Disadvantages: 

• Cannot be used for primary or secondary schools
• Investments are often limited to a few choices

II. Pre-paid tuition plans: 12 states now offer pre-paid tuition plans such as the Texas Tomorrow Fund. They operate much like a 529 savings plan. If you are an 8th generation Aggie, this may be worth considering. One advantage is that you can lock down tuition costs, thus protecting yourself against college costs that have been escalating faster than inflation. Two big downsides:

1. Some are school-specific. If your child rebels against going to your alma mater, your only options might be to transfer the money to another child or withdraw the savings with penalties.
2. They have a much bigger impact on your child's ability to qualify for financial aid. They are considered an asset just like a scholarship and aid is reduced dollar for dollar for pre-paid tuition savings.

III. Coverdell education savings accounts (ESAs): Named in honor of the late Senator Paul Coverdell (R-GA), this plan was set up by Congress as an incentive to save for school expenses.

Advantages:

• Can be used for not only college but primary & secondary school expenses
• Amounts deposited grow tax-free and are distributed tax-free if used for qualified expenses
• Allows almost any form of investment including stocks, bonds and mutual funds

Disadvantages:

• Amount per year limited to $2,000 total per child
• Cannot be used for anyone over age 18 except qualified special needs
• Must be distributed by age 30 or subject to withdrawal penalties
• Income levels may affect ability to contribute. For the 2010 tax year, couples filing jointly earning over $160,000 AGI became ineligible.
• Because of the limit on annual contributions, many brokerages do not offer Coverdell plans

Rodney Jarrell, a Dallas-based educational consultant with Berkshire Education, recommends that, no matter what type of plan you choose, the money not be put in the child's name. "Then it won't count against them for financial aid," he says. "Also, I recommend your child not work too much senior year or they will be punished in being able to qualify for aid. 50% of their earnings over $3,000 is forfeited in their qualifications for financial aid." Rodney helps students and their families with all aspects of college planning, and especially qualifying for merit and need-based aid. For more information, contact rodneyjarrell@berkshireeducation.com or visit www.DFWCollegePlanning.com.

At Tannery & Company, we can help you set up a 529 or Coverdell Plan. We can also model future college costs for your children or grandchildren and incorporate that into your overall wealth management plan. Call us for more information.

Please note: this article is not an exhaustive list of features of each type of college savings plan. Individual circumstances may vary.

Anyone who stops learning is old, whether at twenty or eighty.  ~ Henry Ford