Education investing

One of the best investments you can make is for your education. Those who continue with their schooling to obtain advanced degrees have proven to be happier, wealthier, and more economically stable than those who did not get a good education.

However, paying for an education is expensive. The costs of getting a college degree get higher and higher each year, and the amount of money available for student loans is getting smaller. For that reason, it is important to start investing in you or your children's educations early.

If you are unsure of where to start, the following is a look at a few options for education investing:

529 Plans
Also referred to as a Qualified Tuition Plan, a 529 is a college savings plan. This type of investment is run by each individual state, but the good thing about it is you don't have to go to a college in the state where you began investing in your 529. For example, you can be a resident of Florida and open a 529 there, and then go to a college in Washington and still access your 529 funds.

529 plans are a good education investing option for a number of reasons. Anyone can contribute to them, including the beneficiary. So if you open a 529 for your newborn, 17 years later when he gets his first job, he can contribute to the 529 as well. The earnings and gains are also tax-free providing you use them for college-related expenses.

The down sides include steep penalties for using the funds for anything other than college-approved expenses. This includes taxes on the earnings as well as a 10% penalty. Setting up a plan can also be costly at first, so it's important to look around for different plans and rates.

Coverdell Education Plans
Also called ESAs, these are basically education individual retirement accounts (IRAs), except they are used for education purposes and not retirement.

As with an IRA, there are limitations for contributing to a Coverdell education plan. Individuals who make less than $110,000 a year can contribute up to $2,000 a year to a plan for anyone under 18. While this may not sound like much, kids can also contribute to their ESAs up to $2,000 a year, and there is no limit to the number of people who can contribute that amount of money.

Keep in mind that you can't count contributions to an ESA as a tax deduction. In addition, using funds from an ESA for anything other than higher education expenses subjects you to a 10% penalty as well as taxes on the money taken out, like other education investment plans. In addition, it's important to remember that the funds in an ESA are the assets of the beneficiary. This could make it more difficult for them to obtain need-based financial aid should they need it.

Savings bonds
Savings bonds are another option for education investing. With a savings bond, the interest earned is tax-free, which is a nice advantage. There are certain conditions to this though, so make sure you completely understand them. Another plus of a savings bond is flexibility. The funds don't have to be designated for education, so you could use them for your retirement if you don't need all of them for education.

There are many great plans and options available for education and investing.