College Saving 101

Here's an introduction to the various ways you can stash cash to pay for a higher education.

The kinds of investments that can help you accumulate a college nest egg are the same that can help with other investment goals. But because you need a plan designed specifically to pay for college education, there are a few twists and turns to take into account.

Any plan you set up should be easy and economical to fund on a regular basis. Here are several options that fit the bill. Plus, we'll explain the tax breaks Uncle Sam offers when you're paying tuition.

• State-Sponsored College Savings Plans
  Both 529 and prepaid-tuition plans offer great tax advantages, but that's where the similarities end.

  

• Coverdell ESAs
  You get more control over your investments, but the amount you can invest is limited.

• Zero-Coupon Bonds
  This investment offers a predictable payout to coincide when college bills come due.

• U.S. Savings Bonds
  There are tax advantages, but not for everyone.

• Roth IRAs
  This retirement-savings account can serve as a fall-back fund for paying the college bill.

• Tax Credits for College Expenses
  Uncle Sam helps you defray some of the costs of getting a higher education.

Adapted from Kiplinger's Practical Guide to Your Money, by the Editors of Kiplinger's Personal Finance magazine (Kaplan Publishing. Copyright 2005 The Kiplinger Washington Editors, Inc.) Available wherever books are sold or direct at kiplinger.com/store/books.

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