5 smart places to stash your kid's college savings

If you're hoping to save the tens of thousands of dollars needed to send your children to college, you'll need to do more than stash money in a savings account. To accumulate enough cash to stave off future student loan debt, you'll probably need to invest, and do so over a long enough time horizon.

The good news is that there are several investment vehicles out there that can help you save money while also offering some tax advantages. Some are designed specifically for college savings, while others have different purposes but can be used to help with education costs.

When saving for college, consider stashing your money in one (or a combination) of these places.

1. A 529 Plan

Any conversation about college savings should begin with a 529 plan. These are investment plans offered by states that allow you to invest money tax-free, as long as the funds eventually go to college expenses. You can open a 529 plan as soon as a child is born and in many cases, begin contributing as little as $25 a month. In addition to seeing investments grow without fear of paying taxes later, you can also get matching contributions and additional tax benefits from some states. In most cases, there are no restrictions on which college a beneficiary can attend. A child enrolled Maryland's college savings plan, for example, can use funds to attend school in Ohio. (See also: The 9 Best State 529 College Savings Plans)

Most 529 plans offer a menu of mutual funds to invest in, though you may find your options limited to target date funds with relatively high fees. And it's important to note that if you don't use the funds for college expenses, you'll pay taxes and a 10% penalty.

2. Coverdell ESA

A Coverdell Education Savings Account is similar to a 529, in that you can invest money and will not see taxes on the gains. The advantage of a Coverdell is that you can invest in just about anything, and the money can be used for any educational expenses, not just college (even tuition for private high schools or grade schools would qualify).

There is a $2,000 annual limit on Coverdell accounts, however, so it's unlikely you'll be able to save for the full bulk of college costs. There are also income limits, as those individuals with a gross income of $110,000 (or $220,000 for parents filing jointly) can't open Coverdell accounts.

RELATED: Check out the best part-time jobs for your children while in school:

Best part-time job for college students
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Best part-time job for college students

If you grew up babysitting younger family members, then this position is perfect for you. Not only is being a nanny one of the most flexible part-time jobs, but you can set your own rate. 

Photo credit: Getty

While the hours for this position may not be as flexible, working as an office assistant or receptionist for a major company is a great way to get your foot in the door. As a receptionist you will be tasked with entry-level responsibilities, which will give you a great advantage when applying to your first full-time job. 

Photo credit: Getty

Possibly one of the most demanding jobs, working as a server in a restaurant comes with just as much stress as reward. The hours may be long, but at some restaurants, wages can be worth it. 

Photo credit: Getty

Similar to working as a nanny, being a tutor is one of the most flexible job opportunities. As a tutor, you can help others in a variety of subjects. This is a great job for a college student because not only will you be helping others, but you will also be strengthening your knowledge in whatever subject you teach. 

Photo credit: Getty

Freelance Work 
Much like serving, being a freelancer can be very rewarding financially. As a freelancer, you can choose which industry you want to work in and begin to gain experience while still in school. 

Photo credit: Getty

Work-Study Job  
If you are a student who meets the qualifications for financial aid, you can apply for your school's work study program. Work study schedules your shifts around your class schedule and the best part is that most jobs are on campus and the money you make can go directly towards paying off your tuition or any other university balances. 

Photo credit: Getty


3. Taxable Brokerage Account

It's smart to look at other options before exploring a regular brokerage account to save for your kids' education. But it is one option that has some advantages over other accounts.

The main downside is that there are no tax advantages when you try to save money in a taxable brokerage account. When you withdraw your money, you'll be stuck with capital gains taxes, and no one is offering to deduct contributions from your taxable income. But, regular brokerage accounts do offer the flexibility of investing in just about anything, so you can seek out investments that have better performance and lower fees. Moreover, there are also no restrictions on how you use the gains, so it's no big deal if your child gets a scholarship or does not attend college.

4. Roth IRA

A Roth Individual Retirement Account isn't designed for college savings, but it can be used for that purpose. Under a Roth IRA, any money can be withdrawn tax-free at age 59 ½, so if you happen to have a college-aged child at that time, you can use that money for education with no penalty. Investors are also allowed to withdraw the contributions (but not the gains) without penalty at any time.

A Roth IRA will generally offer more investment options than a 529 plan, though for people under 50, there is an annual contribution limit of $5,500. If you do use a Roth IRA for college expenses, it's important to remember that saving for retirement should remain a priority over saving for college. So it's advisable to use this account for education expenses only if you have additional plans for your retirement savings.

5. Municipal Bonds

If you're seeking some tax advantages as well as safety, municipal bonds can be a good option for college savings. You won't earn as much going this route, but you may still be able to accumulate enough for college if you start early and contribute regularly.

Municipal bonds are nice because they are tax-free, and don't come with the volatility of stocks. Muni bonds with strong ratings can earn you a tax equivalent return of between 5% and 6%, which is quite solid. If you invest $5,000 annually into these kinds of bonds, you'll have well over $100,000 by the time the kids head off to school.

More from Wise Bread:
Does Your Kid Need an IRA?
When Should You Start Saving for Your Child's Education?
6 Ways to Get College Kids Home for the Holidays for Cheap

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