4 Alternative Ways to Save for College

There are other ways to save for college costs besides the traditional 529 plan. Some offer more flexibility, although none have quite the same advantages. Here's a quick look at the options.

ROTH IRAS

Upside: These are geared for retirement, but you can withdraw contributions, which are shielded from financial aid calculations, at any time.

Downside: Couples can contribute only $11,000 a year—and that should really be earmarked for retirement.

UGMAS AND UTMAS

Upside: Little.

Downsides: These accounts, which predate 529s, are essentially obsolete for new savers. Tax benefits are limited: Only the first $1,050 of withdrawals are tax-free; the next $1,050 are taxed at the child's rate, and the rest are taxed at your rate. You can't change beneficiaries.

COVERDELLS

Upside: Even more flexible than 529s, the Coverdell allows you to pay for college or private school.

Downside: The maximum contribution is $2,000 per student per year.

SAVINGS BONDS

Upside: Interest earned on Series I and EE savings bonds is exempt from federal income tax when used to pay for higher education.

Downside: With college costs still rising, you'll generally need better returns than what you can get here; roughly 1.6% for I bonds, and 0.1% for EE.

This is a part of a feature on investing for college, you can read more here and here.