December 21, 2010 | Stacy Dymalski | Leave a comment Usually when you decide to go back to college, or start college after you’ve been in the workforce for a while, it’s an immediate decision. And as such, you say to yourself, “I want to go to school right now.” However, limited finances can get in the way of that verdict. Yes, there’s always government financial aid, scholarships, and college loans, but if none of those are options for you, then the best thing to do is just start saving now. So how do you save for college, and earn a living at the same time? There are several ways, but each depends upon how liquid you want the cash to be, your age, and how long you plan to save. Taking all that into consideration, here are five ways you can put money away for that elusive college tuition: The Old Fashioned Savings Account Most financial planners will tell you that this is the least beneficial way to save money, however, it is the easiest way to start. True, a traditional savings account yields extremely low interest compared to other options, but it does allow you to get on the savings train without any kind of real financial commitment. This is both a positive and a negative. On the one hand, your contribution can vary, even skipping some months if cash is tight. Plus, your money is liquid, meaning you can take it out at any time and spend it on whatever you want, which is handy in emergency situations. But for precisely the same reasons, your college savings plan can quickly dwindle, if you decide to use the money for more immediate gratificationâ€¦such as a trip to Hawaii, or a new car. Saving for college via a bank account is a good way to start, but once you get a nest egg, you should switch it to something else that offers a higher rate of return. A 529 Plan A 529 is a state-backed savings account that allows you to put money away for college, and is tax deductible in some states (check with your tax advisor). The good news is the interest on your 529 contributions grows tax deferred and if you use the money specifically for college expenses the distributions are completely tax-free. The bad news, once the money is in the 529 you can’t take it out for anything other than college expenses without the risk of a penalty (making it an excellent way to save). Most people think of 529 plans as something parents and grandparents set up strictly for kids. Not so. Even retired people who decide to go back to school can set up a 529 plan for themselves. Just check to make sure the plans in your state don’t have an age limit (most don’t). A ROTH IRA Contributions to a ROTH IRA have already been taxed, however, the interest on the ROTH has NOT been taxed. Therefore, if you use your ROTH for college, make sure you do not take out more than your original investment. Anything distributed beyond that is subject to tax and penalty, if you take it out before you’re 59Â½. Regardless, there are creative ways to use your existing ROTH IRA as a means to pay for college, but they can be tricky. For example, the IRS wants you to first exhaust all other financial aid options before you turn to your ROTH (so you have to show you tried). Plus, ROTH distributions must be made in the same year the college expenses were incurred. This means you can’t go back and pay for your college retroactively by cashing in your ROTH. To be safe, check with a financial advisor before you use any part of your ROTH to pay for college. Coverdell Educational Savings Account or Educational IRA A Coverdell is the new name for the old Educational IRA. A Coverdell is a great way to save for college, but unfortunately the account had to be opened before the beneficiary turned 18. So if you’re an adult going back to school, it’s not much help. I bring this up only because Coverdell is all over the Internet as a great way to save for college. It is – as long as you’re still in short pants and your parents are fronting it for you. Prepaid Tuition If you know where you want to go to school, many colleges allow you to save directly with them via prepaid tuition. It works kind of like buying something at Walmart on lay-away. You set up an account with the college financial aid office and then make regular tuition payments BEFORE you enroll. The good news? You’re locked into low tuition prices even if they go up by the time you go to school. The bad news? You’re locked into going to that particular college (no refunds allowed). If you’re interested in going this savings route, check with the college you wish to attend and see if they offer any type of prepaid tuition programs. Regardless of your method of saving, it’s never too late to start saving for college. You just have to find the savings plan that’s right for you, which is just as import (if not more so) as picking the right school (especially when the money’s coming out of YOUR pocket).