What investments can I use to save for college?

Modified adjusted gross income (MAGI)

Periodic savings

Saving frequency

What is your filing status?

This calculator explains some of the options you have to save for college. These accounts include tax-advantaged accounts like the Coverdell ESAs, formerly called education IRAs, and qualified tuition plans. QTPs are also referred to as Section 529 plans.

Coverdell education savings account (ESA):A Coverdell education savings account, formerly called an education IRA, is a tax-advantaged account that allows you to make after-tax contributions to pay for college tuition and qualified educational expenses. In 2011, you can contribute up to $2,000 per year to pay for educational expenses, including those for primary and secondary schools. Withdrawals are tax-exempt up to the amount of qualified expenses. The amount you can contribute to a Coverdell ESA is phased out at higher incomes. For single persons, the phase-out begins when modified adjusted gross income reaches $95,000. Allowable contributions phase out at $110,000. For married persons filing a joint return, the phase-out limits are exactly twice as much in 2011.

Qualified tuition plan (QTP):A qualified tuition plan (QTP) is also called a Section 529 plan after the section of tax code that governs it. Qualified tuition plans include prepaid tuition plans and college savings plans. Currently, qualified tuition plans are state-sponsored savings plans for college expenses of a child, grandchild or other dependent. The 2001 tax law expands their benefits by allowing tax-exempt distributions to pay for qualified higher education expenses. State-sponsored plans may also offer exemptions from state income taxes. Check with your plan administrator.

Tax filing status:The IRS has five basic tax filing statuses: You file a single return if you are unmarried or legally separated on the last day of the year and do not qualify for another filing status. Married persons can elect to file either jointly or separately. You file a head-of-household return if you meet the following requirements: a) you are unmarried, or considered unmarried, on the last day of the year; b) you paid more than half the cost of maintaining a home for the year; and c) a qualifying person has lived with you for at least half of the year. You file a return as qualifying widow(er) with dependent children if you meet the following requirements: a) you were entitled to file a joint return with your spouse in the year he or she died; b) you did not remarry before the last day of the tax year; c) you have a child, stepchild, adopted child or foster child for whom you can claim an exemption; d) and you paid more than half the cost of maintaining a home for the year that was the main home for you and child.

Modified adjusted gross income (MAGI):Modified adjusted gross income (MAGI) is a measure of income used to determine how much of a tax-deductible contribution you may make to a regular IRA or nondeductible contribution to a Roth IRA. MAGI is also used to determine how much you can contribute to certain Coverdell education savings accounts, formerly called education IRAs. MAGI is smaller than gross income and may be larger than adjusted gross income (AGI is shown on line 37 of the 2010 IRS Form 1040.) The IRS says that MAGI and AGI are equal for most taxpayers. To calculate MAGI, add any foreign-earned income and housing exclusions (or income earned in American Samoa or Puerto Rico) to your AGI.

UGMA/UTMA accounts:UGMA/UTMA accounts are custodial accounts with limited tax advantages that are used for giving to a child or other beneficiary under the age of 18 or 21. UGMA is an acronym for Uniform Gifts to Minors Act. UTMA is an acronym for Uniform Transfers to Minors Act. UGMA accounts are generally limited to the transferring only such liquid assets as stocks, bonds and other savings deposits. UTMAs allow for transfers of such illiquid assets as real estate. Depending on the state you live in, you would use either an UGMA or UTMA. In some cases, both laws may apply. You should consult a tax or financial adviser to more thoroughly understand UGMAs and UTMAs.

Saving frequency:Select the frequency that you estimate you will be able to contribute to a Section 529 plan, Coverdell education savings account or other tax-advantaged account for future college expenses.

Taxable account:A taxable account is an account that does not receive the tax breaks that either a tax-exempt account or tax-deferred account are eligible to receive. (Both of these accounts are called tax-advantaged accounts. Tax-advantaged accounts are authorized by the IRS as investment vehicles to save for your retirement or the retirements of investors.)