Are there any alternatives that would allow us to save comparably but without penalties? Or would the two just cancel each other out (No tax breaks but also no risk)?
Answers:
You could invest in an IRA or Roth IRA. Both of those are retirement accounts that function give you tax advantages if you don't withdraw the money until after you are 59 1/2 (I think). There is normally a penalty for early withdrawal, but there is no penalty for certain withdrawals made to cover college expenses. The details are somewhat complicated, so you will definitely need to investigate further before pursuing this.
In theory you could use money from an IRA to pay for your children's college tuition if they attend college, and leave the money in your retirement account until you were old enough to withdraw it without penalty if they forgo college. Or if they get a full scholarship (let's think positive!).
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