September 14th, 2007 
Tushar Mathur My daughter will be turning 2 in January. So for my wife and I, its time for us to start planning for her college. Should we go for a College 529 plan, an Education IRA or a Regular Investment account ? What should we do?
So I started researching the various college savings options available. I decided to go to the Vanguard website because Vanguard is the most conservative mutual fund company I know of, because as far as saving for college is concerned I dont want to invest too aggressively. So here is what I found.
529 College savings Plan
529 plans enable you to invest for higher education free of federal and, sometimes, state income taxes. States or schools can sponsor a 529 plan. Most are open to residents of all states. Some plans allow you to invest between $200,000 and $300,000 on behalf of one child, so a 529 plan may be your best bet for fully funding a college education.
Advantage
Enjoy investing flexibility, high contribution limits, and tax advantages to save for college and graduate school.
Disadvantage
The money can ONLY be used for college.
And If your kid doesn’t go to college, you may name another eligible family member as beneficiary on the account and use the 529 assets to pay for that person’s education. If no eligible family members can be named beneficiary, then you might have to close the account, paying federal and possibly state income taxes and a 10% federal penalty tax on earnings not used for qualified higher-education expenses.
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Education Savings Account
Advantage
you can invest for any level of a child’s education–primary school, high school, college, or beyond. And you can start investing for that child from birth. The money is taxed at the child’s tax rate, which is typically lower than the parents’ rate.
Although contributions aren’t tax-deductible, your earnings grow tax-free and withdrawals are free from federal income taxes when used for qualified education expenses.
Disadvantage
You can only contribute $2000 a year.
UGMA/UTMA accounts
Advantage
A tax-advantaged way to save for a child’s future, for higher education or any other purpose that benefits the child.
The accounts dont have any contribution limits, though contributions above a certain amount will trigger the federal gift tax.
Disadvantage
When the child turn 18, he/she gains control of the money and they can do anything with the money.
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Regular Investment Account
Advantage
You retain complete control of the account. Select from from a broad lineup of stock, bond, balanced, and short-term investments.
Disadvantage
You do not receive the tax advantages of accounts specifically created for college investing.
So what did we decide ?
As of now, our finances are in order with no credit card debt an we regularly keep a close watch on our savings and spending. Therefore, we went for a regular investment account. We chose the Vanguard STAR fund that is a conservative balanced mutual fund that has consistently given a return of at least 10%.
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Great topic. It has been one that I have been thinking about lately. I think everyone's situation is different, but I agree that I am hesitant to use a 529 plan because of its limits to education
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