A Lot of College

Dear Dave,

We have five kids under the age of five. We'd like for all of them to be able to go to college, but we're not sure how much it will cost. Our household income in about $90,000 a year, and we have no debt except for our home. What's the best route to go with our college savings plan?

Laura

Dear Laura,

Whew! Boy, you guys have got a house full and your hands full! You've also got a nice income, and that's going to help a lot. Right now, the most you can put into an Educational Savings Account (ESA) is $2,000 per year. If you did this annually for each kid, you have a little over $100,000 per child when it comes time to send them off to college. Pretty sweet, isn't it? That will buy a good education at just about any state school.

For the first $2,000, an ESA has more flexibility than a 529 plan. They're very similar in how they act, but with an ESA you're in total control of the investment. You can move it around, and put it into almost any mutual fund. If you use the ESA or a 529 for anything other than college you'll get hit with a 15 percent penalty, plus the tax rate, so start brainwashing the kids now; it's for college only!

- Dave

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