Q: I have two sons, one is eight and the oldest is 13. I recently came into a lump sum of money, a little over $15,000. I want to start a college savings for them. Should I look to invest in a 529 college savings plan, a prepaid state tuition program, or an education-type IRA? Where can I get information?
— M. Williams, Via the Internet
A: For younger children, financial planners generally recommend college savings plans. For middle school children, they recommend prepaid plans, especially if the parent knows the child is more likely to go to school in state.
However, in your case, North Carolina no longer has a state prepaid tuition program. You should look to contribute to both a 529 college savings plan and a Coverdell education savings account. Both are tax-advantaged savings vehicles. Money withdrawn from either plan to pay for qualified education expenses is free from federal income tax.
The annual contribution for Coverdell ESAs is $2,000 per beneficiary. You control the types of investments in the account. With a 529 plan, you can contribute up to $200,000, but you are beholden to that state plan’s investment options. For information on college savings plans, visit the College Foundation of North Carolina at www.cfnc.org. Check out www.saving forcollege.com, which rates state programs on a scale. Also, access information from the College Savings Network (www.collegesavings.org), FinAid (www.finaid.org), and the College Board (www.collegeboard.com).