Off to College - First Community Federal Credit Union

If you're faced with college costs, either soon or down the road, the federal government, along with the states, offers several tax-advantaged ways to help you save. Here's a rundown of your options:

Coverdell Education Savings Accounts

Coverdell Education Savings Accounts (ESA's) offer you a tax-free way to save for your child's elementary, secondary, and college education expenses.

You can contribute up to $2,000 a year to an education savings account per child. You can make contributions anytime after a child is born until the child's 18th birthday (with an exception for special needs beneficiaries).

Although contributions aren't tax deductible, earnings accumulate tax deferred. Then withdrawals to pay qualified education expenses are free from federal taxes. Those who meet the income limits--including parents, grandparents, and children themselves-- are eligible to contribute.

529 college savings programs

529 college savings programs offer you a tax-free way to save for future college costs. In general, college savings programs don't have any eligibility income limitations.

There are two main types of 529 programs and each state's program has its own terms and features. Prepaid tuition plans allow you to pay tuition in advance and lock in the cost based on today's tuition prices. These plans pool investments and aim to keep pace with tuition increases in that state.

College savings plans allow you to save money in a special college savings account for tuition and fees, books and supplies, and certain room and board expenses. These plans provide variable rates of return based on the investments you choose from the available options. You can use savings in these types of plans at any eligible public or private college or university nationwide.