Ms. Markham was recently quoted in American Bar Association's Experience Magazine regarding creative ways to pay for college.
“One good way to pay for college is to stretch your existing savings,” advises Jessica Markham of the Markham Law Firm in Bethesda, Maryland. “Not everyone is aware that the savings bond education tax exclusion allows the exclusions from gross income all or part of the interest paid upon the redemption of eligible Series EE and I Bonds issued after 1989 when used to pay qualified higher education expenses.”
"In addition, you can use retirement savings effectively,” adds Markham. “Normally, if you withdraw money from an IRA before age 59 and a half, there’s a 10 percent early distribution penalty, plus you pay any regular income tax due. There is, however, an exception for distributions used to pay qualified higher-education expenses.”
Be advised though, that the bond exemption mentioned above has limitations that phase out as income increases, so not everyone may be eligible for it. In addition, the IRA penalty is waived for qualified education expenses, not the tax. Consult your tax advisor before making any decisions about how to pay for college that may result in tax consequences.