Think Outside of the State

Don't limit yourself to the 529 funds offered by your state. You can enroll in a 529 fund offered by any state. Because state 529 funds can be used to bankroll education in any other state and vary in terms of rules and regulations, it makes sense to look around to find a state that offers a low-fee plan that meets your needs.

Coverdell ESA

Consider opening a Coverdell ESA for additional college investing. Formerly called the Education IRA, the Coverdell ESA is an investment vehicle that is exempt from income taxes as long as the funds are used for educational purposes. The maximum contribution to a Coverdell ESA is $2,000 per year for each account open. You can open a separate account for each of your children if you want. When they turn 18, however, they are given control of the money. They still have to use it for educational expenses, but how they do so is their decision. Besides college expenses, money in a Coverdell ESA can be used to finance elementary and secondary school costs including uniforms, transportation, and study materials.

Gift Giving and 529 Funds

Let relatives know when you open 529 funds for your children. Contributions to the college investing plans make great gifts for young scholars. By giving to a child's college investment, your relatives will be giving much more value than the dollar amount they choose to contribute.

Who Gets the 529 Money

Don't worry that your children might blow their 529 funds on wild college parties. When you open 529 funds for your children or young relatives, you have control of the money in the account. This means that even when the student turns 18 you'll decide how the 529 money is spent.

529 Funds and Financial Aid

Money contributed to 529 funds will affect your child's eligibility for federal financial aid, but not by as much as you might think. Rather than having the entire amount of your 529 fund count as additional income, only a small percentage is considered. This means that you won't get as much financial aid if you have money saved up in 529 funds, but it's still worth it to save all you can.

When to Not Use 529 Funds

Of course you want the best for your kids, but don't sacrifice your own retirement to contribute to their 529 funds. There are grants, scholarships and low-interest student loans available to help pay for college. There are no such grants, scholarships or loans available to help you pay for your retirement. Only contribute to a 529 plan after you have reasonably high contributions to your retirement plans.