Choosing the right college savings account can feel overwhelming. All with unique sets of complex rules, it's tough to even know where to start with at least half a dozen different types of college savings accounts.  The right type of college savings account unfortunately can be selected by asking yourself a few simple questions. Since each account has its unique features and benefits, your answers will pretty much make the decision for you. You won't need to look much further than a section 529 Prepaid Tuition Plan in case safety is your primary concern. These plans let you buy tuition in today's dollars, and are guaranteed by the issuing state to give you an equivalent amount of tuition at some point in the future. The state that runs such a plan would have to go bankrupt for you to lose your investment from a safety perspective. It's unlikely to outperform a portfolio that has stock market but will likely outperform other "safe" college funding options from an investment return perspective. A better investment would need to show the same level of safety but a higher rate of return since he historical rate of college inflation is close to 6%.

 

Choosing the best college account

Series EE historically have earned 3-6%, which leaves them lagging behind the Section that was already mentioned. Buying individual bonds in a UGMA account might get you close to the return of prepaid tuition plan, but will be subject to taxation on any interest earned above a certain amount. In many of the other savings plans using bond mutual funds may offer an equal historical rate of return, but will also be subject to volatility and potential losses.  You might want to consider the Independent Section 529 Plan if you think your child will attend a private school since most states' plans primarily cover public colleges and universities. Considering that many of the states essentially put cash back into your pocket for using their Section 529 Saving Plan it would seem foolish to not take advantage of it.  It's probably wise to take the "free money since many of the states offer at least one or two good long-term stock market options in their savings plans. It's unlikely that you will accumulate more than you'll actually need for college in case you think you'll save less than $2,000 per year (the maximum allowed contribution to a Coverdell ESA). You probably won't have to face the possibility associated with a Coverdell of having to give a child the leftovers at age thirty since you'll likely spend the majority of the funds you save. This account will probably better fit your needs as well as much looser standards on how the money gets spent (including tuition for grades K-12 since the Coverdell ESA offers much more freedom in selecting your investments. The case for a Coverdell gets even stronger if you have multiple children. This comes from the fact that you can transfer unused funds down to another Coverdell account.