Start saving for your child's future.

While it is never too late to start saving for your child's college education, the earlier you start, the harder your money can work for you. Putting away even just a few dollars a day can go a long way toward helping you meet the rapidly rising cost of higher education.

As a parent, you will find a wide range of investment options available to you. At Chela Education Financing, we believe it is important to familiarize yourself with your choices so that you may select the savings and investment strategies that meet your family's individual goals. We have provided some information and links on this website to help you begin your research, but we suggest that you work with a financial advisor to tailor your plan.

There are three types of savings plans specifically designed to offer tax benefits and investment options for families saving for their children's education: 529 College Savings Plans, Prepaid Tuition Plans, and Coverdell Education Savings Accounts (formerly Education IRA). The investment options, contribution limits, and tax benefits can vary widely among these plans. To compare the three types of plans side by side, see the plan comparison chart.

529 Savings Plans

Each state sponsors one or more 529 College Savings Plans, which vary in terms of fees, investment options and tax advantages. A family may participate in a plan offered by their home state (which provides state-specific tax benefits), or any other state. For a comparison of each state's plans, visit http://www.401kid.com/529-plan-statebystate.asp.

Unlike other plans, with 529 College Savings Plans you maintain control of the investment categories within the account, there are no annual contribution limits or income limits to worry about, and your child may apply the savings toward attendance at any college. However, there is risk involved with these plans, as the future value is dependent upon investment choices and market conditions.

Prepaid Tuition Plans

Prepaid Tuition Plans allow a family to prepay an individual's future college costs at today's tuition prices at eligible institutions. There are two types of Prepaid Tuition Plans:

• State Plans, which enable students to attend an in-state public college when they reach college-age.
• Private Plan (also called the Independent 529 Plan), which enables students to attend one of over 200 participating private colleges.

While prepaid tuition plans provide protection from inflation risk by locking in today's education costs, they require that your family have an idea of the type of school your child plans to attend, and they do not enable plan participants to control how their dollars are invested.

Coverdell Education Savings Accounts (ESAs)

Formerly known as Education IRAs, Coverdell ESAs can be used to save for your child's elementary, secondary, and/or college education. Unlike 529 College Savings Plans, which have limited investment options, Coverdell ESAs give you complete control over how your money is invested. Earnings in Coverdell ESAs are tax-deferred, and withdrawals used for qualified education expenses are tax-free.

Coverdell ESAs are attractive because of the limitless investment options they allow, however the yearly contribution limits are much lower than either 529 College Savings Plans or Prepaid Tuition Plans. In addition, a family is only eligible to contribute if their yearly income falls below certain thresholds.