How can you save taxes on college savings?

Answer 1

Frequently a double edged sword...many programs that have tax preference basically have a lower return built in than a taxable vehicle.

But review the link to the IRS brochure which covers Fed programs...and remember that many states have special programs...essentially advance payment locking in the tuition costs, or such...investments programs if the student goes to a State school, etc. Many of these have downsides...limiting the schools of choice or penalties if the student doesn't go to school.

http://www.irs.gov/pub/irs-pdf/p970.pdf

Finally, don't forget that the paying for school itself may create a reasonable tax deduction or have tax credits you can claim.

One national program:

A Coverdell Education Savings Account (ESA) is an account created as an incentive to help parents and students save for education expenses. The total contributions for the beneficiary of this account cannot be more than $2,000 in any year, no matter how many accounts have been established. A beneficiary is someone who is under age 18 or is a special needs beneficiary. Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary's qualified education expenses at an eligible institution. This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses.