3. Saving

b. Compare savings options (continued)

We've put together a few quick Pros and Cons for each of these common savings options.

This chart compares different types of savings accounts based on income limits, use of funds, contribution limits and tax treatment. It’s important to do your homework when looking for an investment option for your family.  
 

Option	Pros	Cons
529 College Savings Plans CollegeInvest	Money can be used at public or private colleges, univesities, trade or vocational schools nationwide Collegeinvest offers Colorado state income tax deduction Savings grow tax-free Tax-free qualified withdrawals* Beneficiary can be changed at any time** No restrictions on who can contribute	Must use investment options offered by the plan Can only change investment option twice per calendar year (2009 only) Funds must be used for qualified higher education expenses to avoid penalties
Uniform Trust/Gift to Minors Act Account (UTMA/UGMA)	Can invest in wide variety of investments vehicles Unlimited annual contribution limit Can be used for any expense benefitting the minor	Child ultimately controls the account Account is considered asset of the child (affects financial aid) Cannot be transferred to another child
Coverdell Education Savings Account	Can be used for primary and secondary education expenses Lower weighting in financial aid eligibility formulas Withdrawals tax-free if used for education	$2,000 annual contribution limit per beneficiary Money must be used by age 30 or earnings are taxed as ordinary income +10% penalty, even when used for education No contributions after child reaches age 18
Roth IRA or 401(k)	No penalty on qualified withdrawals You can take a loan from a 401(k)	Withdrawals counted as income in financial aid formulas Maximum contribution limit may be as low as $5,000 You may be hurting your retirement funding
U.S. Savings Bonds	Backed by the U.S. government No penalty if not used for college	Low interest rates Forfeit three months of interest if cashed prior to five years of maturity Contribution limit as low as $5,000 face value per person, per year
Taxable Accounts (i.e. - Simple Interest Savings Account or Certificates of Deposit)	FDIC insured No contribution limit	Low interest rates No special tax advantage