Thankfully, it just got easier, as the U.S. Department of Education has leveled the playing field between state-sponsored 529 plans and Coverdell accounts. Previously, Coverdells were considered a student asset, meaning that 35 percent of the account balance each year was counted against financial aid. Now the Coverdell, like a 529 plan, is considered a parental asset, and so will displace a much smaller amount of financial aid. (Withdrawals won’t count at all.)

Here’s a brief refresher on the most popular college savings accounts. For more detailed information, visit with a Thrivent Financial representative.

Coverdell Education Savings Accounts (ESAs) are a great tool for families to save slowly. Like a Roth IRA, you invest after taxes in mutual funds—earnings grow tax-free. Withdrawals for education-related expenses are tax-free and don’t count as income against financial-aid eligibility. The annual contribution limit is $2,000, and contributors cannot have an adjusted gross income of more than $190,000 a year (joint filing) or $95,000 (single).

529 savings plans*, which are tax-sheltered mutual fund accounts offered by states, are popular because there are no income restrictions and liberal contribution limits. If you choose your own state’s fund, you may get a tax deduction or credit for all or part of the contributions you make, though you are free to choose to invest in any state’s plan. Withdrawals for education-related expenses currently are tax-free. With a 529 plan, you can shift your money inside the plan’s investments or switch to another state’s plan only once a year. You also need to beware of high fees with some states’ plans.

UGMA-UTMA, Uniform Gift to Minors Act and Uniform Transfer to Minors Act accounts, are great ways to transfer funds to students from other investments while delaying taxes. An UGMA-UTMA transfer is a good option for high-income families with older children who don’t expect to qualify for financial aid. But kiddie-tax rules may apply.

Roth IRA Consider earmarking a Roth IRA to complement other education savings funds. Roth income limits are similar to the Coverdell: $95,000 for single individuals and $150,000 for married individuals filing joint returns, but the annual contribution limits are slightly higher. Like the Coverdell, contributions are after taxes, but withdrawals of contributions for your child’s education are tax-free. The Roth offers you the opportunity to have your money do double-duty— for instance, saving for retirement and college at the same time.

What Will It Cost?
Use the online calculator to estimate how much you’ll need for tuition in the future. You can also call a Thrivent Financial representative for help.

Thrivent Financial for Lutherans and its respective associates and employees cannot provide legal, accounting, or tax advice and services. For complete details, work with your team of professionals, including your Thrivent Financial representative, and your attorney or tax professional.

*The 529 College Savings Plan is offered through an outside brokerage arrangement with Thrivent Investment Management Inc., 625 Fourth Ave. S., Minneapolis, MN 55415- 1665, 800-THRIVENT (800-847-4836). Union Bank and Trust Company of Lincoln, NE, is the administrator for this plan. Funds invested in the 529 College Savings Plan have no bank guarantee, are not FDIC insured, and may lose value. Distributions from 529 plans are currently tax free. However, they are subject to the sunset provision of EGTRRA, so the earnings portion of distributions will be taxed at the student’s rate beginning January 1, 2011.