When it comes to planning for the education needs of your family, in addition to traditional savings programs, there are two investment vehicles targeted to education expenses. The first is the Coverdell ESA and the second is the 529 plan. 

The rules and advantages of each are different, so the key is to assess the goals for your family and determine which plan or combination of plans is right for you. 

A Coverdell ESA can be used for elementary and high school education as well as college and can be established through any financial institution that serves as a custodian for IRA plans. That means you can choose where to invest your money, including in a mutual fund if you want.  However, there are income limits that affect contributions and the maximum contribution in a tax year is only $2,000. 

A 529 plan, on the other hand, is a savings plan operated by a state or educational institution that is not subject to income or contribution limits.  One of the biggest benefits of a 529 plan is that you, the donor, can reclaim the funds for yourself at any time for any purpose.  However, you will have to pay income tax and a 10% penalty on the earnings portion of the “non-qualified” withdrawal.   

Remember that a financial planner can help you put together a plan for your family.  In addition, the information available at www.savingforcollege.com can help you start the planning process.