College Savings Plans

Tennessee's BEST 529 Savings Plan
The BEST 529 Plan offers multiple investment options with varying degrees of risk and potential rates of return.  Nearly anyone can set up accounts, and the earnings are tax-free when used to pay for education expenses.  You can use the funds to pay educational expenses at most any college in the country, and funds not used by the designated student can be transferred to another person.

Tennessee's BEST Prepaid Tuition Plan
The Prepaid Tuition Plan, introduced in 1997, is based on the average tuition inflation at Tennessee public colleges and universities.  The tuition units, however, can be used anywhere in the United States.  The State of Tennessee Treasury Department manages the investments to keep up with increases in state university costs.  The BEST Program provides tax advantages to those saving for the future cost of higher education.  Other advantages include its flexibility to use tuition units at any college or university, public or private, in the country.

Coverdell Education Savings Accounts (formerly Education IRAs)
A Coverdell Education Savings Account may be opened for a named beneficiary under the age of 18 (or longer, for students with special needs).  Annual contributions of $2,000 can be made into a child's IRA.  Carry-back contributions--made by April 15 for the previous year--are now permitted.  Contributions are not tax deductible, but they and their earnings can be withdrawn tax tree for qualified educational expenses at most K-12 or postsecondary institutions.  For more information on Coverdell plans, check out IRS Publication 970, Tax Benefits for Higher Education.

Other IRA Options
A traditional Individual Retirement Account (IRA) or a Roth IRA can provide a tax-advantaged way to save for college, using the early withdrawal provisions for educational expenses.  IRS Publication 590, Individual Retirement Arrangements, gives all the details on this approach to college savings.

Read more about other education-related tax savings.