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Ask Dave

Saving For College...Doing Something Wrong?

Tamara doesn't like the option that she has chosen to save for the kids' college. Dave has a better idea for her.

QUESTION: Tamara has 4 children and has been saving for their education with an ESA in a savings account at her local bank.  The savings have not been growing.  What’s the best way to invest the money for their education?

ANSWER: The ESA is not an investment.  It has to do with the way the investment is treated for taxes.  The ESA only wraps around the investment to keep it warm from taxes.  In your case, you wrapped the ESA around a bad savings account. 

You should have that money in good growth stock mutual funds.  Then qualify the mutual fund as an ESA and use the money for your children’s education.