3 ways to save for college

Some plans to let you use money for other expenses as well


Since college expenses loom largest in many parents’ minds, a College 529 savings plan is a highly recommended vehicle for savings. “They’re probably the simplest way to begin saving. You can open the account online, and you can start with as little as $25,” Mazzetti says.

College 529 plans are tax-deferred accounts, meaning the interest you earn need not be reported on your federal income tax. The money you withdraw is not taxed either, provided it is used for qualified college expenses (tuition, room and board, books and certain other expenses).

One unique feature is the Upromise rewards program, which allows you – and friends and relatives – to earn savings for college by spending money at a number of participating grocery stores, restaurants, department stores and gas stations. Grandparents can help earn money for their grandchild’s tuition as they shop.

Most people are unaware of how many places can earn them points.

The site "upromise" provides a list of more than 550 national companies and 8,000 restaurants that offer Upromise rewards. Companies include Bed, Bath & Beyond, Avis, Mobil, Sprint, and Sharper Image. Local restaurants on the Upromise list include the Gateway Diner in Newburgh, the Harvest Café in New Paltz, Posa Posa Restaurant in Nanuet and Sukhothai in Beacon.

Although the College 529 plan is state-specific, your child does not need to attend college in New York to use the money, Mazzetti notes. Visit ny.saves.com to open a College 529 plan.

To save for both college and other life expenses, the Roth IRA is another strong option. The Roth IRA differs from a traditional retirement account in that withdrawals are not taxed. While Roth IRAs are considered primarily for retirement savings, “most people don’t realize they can be used for education savings as well,” Mazzetti says. Any money you contribute – but not the interest earned on that money – may be withdrawn at any time, without penalty. Individuals may contribute up to $5,000 per year.

A third option is a UGMA (Uniformed Gift to Minors Account) or a UTMA (Uniformed Transfer to Minors Account ). These accounts are a way for minors to hold stocks and for parents and grandparents to transfer investments to them efficiently. The parent is considered the custodian of these types of accounts, and the child’s name also appears on the account. Parents should be aware that once the child turns 18 or 21 (depending on the account), the child gains control of the account. 

Unlike the College 529, which is strictly for college expenses, the Gift to Minors account may be used for other expenses “for the child’s benefit,” such as summer camp.

If your company offers a 401(k) plan, it’s wise to participate regardless of your income level. Again, waiting a few years could cost you thousands of dollars in lost earnings, so even if you don’t think you earn “enough,” contribute a small amount anyway.

Carolyn Quoma is a freelance writer living in Dutchess County.