A 529 tax-favored college savings program helps people prepare for the rising costs of educational expenses. Anyone can open an account for a beneficiary or oneself. Depending upon the state, taxpayers can deduct up to a designated amount annually from their state-adjusted gross income. In addition, all earnings on contributions may be exempt from both state and federal income tax if used for qualifying educational expenses. There is no federal deduction for payments or contributions to a 529 plan. For more information, see IRS Pub 970. Most 529 college savings accounts can be opened by people of all income levels, and contributions can be as small as $25 via check or $15 per pay period via payroll deduction. Owners of an account may be able to choose types of investments, depending on their risk tolerance. (It is important to note that contributions and earnings are not guaranteed.) For more information about 529 college savings programs including eligible expenses, account management, and much more, see www.savingforcollege.com/ and www.collegesavings.org/. Other options for college savings include custodial accounts for minor children and Coverdell Education Savings Accounts. Note that, if you hold money for a minor child in a custodial account, it is considered the child's money and cannot be used for purposes other than to support the minor child. If you are not sure whether the money saved might be used for another purpose (you mention buying a house), a custodial account is probably not a good option. If you keep your savings in a money market fund, however, there is an increased chance that you'll spend it on something other than college. Consider establishing two separate accounts: one for college We would like your feedback on this Personal Finance Frequently Asked Question.

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