When parents ask for advice on how to save for their children’s college education, I usually suggest a 529 plan or the Coverdell Education Savings Account (ESA).

Both are tax-free earnings accounts. A 529 plan is a savings plan established by individual states. In Pennsylvania, there are a few 529 options, ranging from plans that keep pace with the rate of inflation, to plans that allow the funds to be invested in a variety of ways. For state tax purposes, contributions are tax deductible.

With a Coverdell ESA, you can contribute up to $2,000 per year, but that money isn’t tax deductible. However, it grows tax-free, and when the beneficiary (i.e. the student) makes withdrawals to cover qualified education expenses, the money is not taxed. One important consideration is that married couples making $220,000 a year are not permitted to contribute to a Coverdell. The same is true for singles making $110,000. If that’s you, or might be you in the near future, the 529 is probably the best option.

Regardless of which option you choose, the important thing is to make regular contributions. Let’s say you’ve chosen the 529 plan and your child receives a bond as a gift, consider converting that into a 529 contribution so that future earnings are tax-free. Furthermore, consider moving money from other education accounts into a 529 plan, again because it’s tax free.

Instead of spending money on unnecessary or frivolous items that your kids are constantly begging for, why not put $50-$100 away monthly for their education.

Budget a small portion of your take home pay and direct deposit it into a 529 plan, Coverdell ESA, or simply a savings account earmarked for education. Try obtaining advice from a financial planner or call a mutual fund company directly to set one up. Or, simply visit the college savings website www.collegesavings.com, which contains comparative charts detailing state taxation and expense ratios.

Above all, plan ahead. If you don’t start saving today for future education needs, you’ll most likely create a collision course during those years when you need to pay for college and are simultaneously trying to retire or prepare for retirement.

Patricia Lampert can be reached at 724-743-4755, or by e-mail at plampert@patricialampert.com.