At that time, the tax consequences apply to the student, who has a lower tax rate than adults. Any family across the country can enroll in the program, and students may use the money to enroll in any accredited, U.S. college or university and some technical schools. Eligible expenses include tuition, books, room and board. If the beneficiary of the account chooses not to pursue higher education or if the funds are needed for emergency purposes, the funds may be withdrawn. In those cases, there is a 10 percent penalty on earnings, but not on principal.
Early savings allow for compound interest to go to work on account contributions and earnings.
Interest rates will vary depending on the type of account used. Two typical options are bank savings accounts and mutual fund accounts. Mutual fund accounts, a collection of stocks and bonds managed by investment professionals, have the potential for a high rate of return but are not FDIC insured. Hall advises families to gather information from the Internet, company savings plans, community banks, library reference books and financial planners to find the best program for their money. She recommends that after establishing a plan, a family do some research on actual college costs.