Take the Fear Out of Paying for College

Uniform Gift to Minors Accounts (UGMAs)

What they are

Like Coverdell accounts, the only thing that separates UGMAs from regular investments is the paperwork. You can invest in a wide variety of financial options, plus you can sock away an unlimited amount of money for your child each year.

What you should know

The tax benefits on these accounts are limited; if you save more than $1,400 in one year, you must pay taxes on the money. If you save more than $11,000 in any given year, you have to pay a gift tax of 25 percent or more, explains Brian Orol, a financial planner who runs 529college.com. And because this money isn't specifically earmarked for education and is placed in your child's name, he's entitled to use any and all of it on whatever he wants when he reaches the age of majority (18 in some states, 21 in others). In other words, your child could use it to start a business venture, or he could blow it all on a cross-country motorcycle trip, warns Vitale. The parent loses control of the assets, so for some families, it's not the best choice.

What you need to start

You can open these accounts with as little as $25 at any local bank, brokerage firm, or credit union.

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