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College Savings Plans: Ways to Save

As you start to save for college, consider three of the most popular ways to set up a college fund: 529 College Savings Plans, UGMA/UTMAs, and Education Savings Accounts (ESAs).

Each one offers different features and benefits. Other methods include high-yield savings accounts, life insurance, and mutual funds. A financial advisor can help you choose the best one for your needs.

529 College Savings Plan  
State-sponsored 529 plans are one of the most popular ways to save for college. You can invest in any state’s 529 plan regardless of your residence, but check with your own state’s plan first. Most offer special tax advantages for residents. 529 plans give you additional benefits such as:

  • The account owner has full control over the account, so you can be sure the money is used for college.
  • Your assets can be used for any qualified higher education expense, including tuition, fees, and certain room and board costs.
  • Earnings grow tax deferred and are free from federal income tax when used for qualified higher education expenses.1
  • Most plans offer gifting programs, which allow friends and family to celebrate milestones by making contributions directly into your account.

UGMA/UTMA 
An UGMA/UTMA (which stands for The Uniform Gift to Minors Act/Uniform Transfers to Minors Act) is a custodial account usually set up at a bank. The assets in the account are designated for the child, but do not have to be used solely on education. Benefits include:

  • Flexibility – you choose how you want to invest the money, with options including mutual funds, stocks, bonds, or CDs.
  • Control – the money is still yours until the child reaches the age of majority, and then it belongs to the beneficiary. But keep in mind – it then becomes their choice whether or not to use the money for college-related expenses.

Education Savings Account (ESA)  
An ESA (also known as a Coverdell ESA) allows you to contribute up to $2,000 per year, per beneficiary to be used for education expenses like tuition and fees. The benefits of an ESA include:

  • The account owner maintains full control over the account until the beneficiary reaches 30 years of age. After that, any assets left in the account transfer to the beneficiary and may be taxable upon withdrawal.
  • As with 529 College Savings Plans, your earnings grow tax deferred and are free from federal income tax when used for qualified higher education expenses.1

Other ways to save for college

Upromise by Sallie Mae® is a service that lets you earn cash back for college when you buy everyday items online, travel, dine out, and more. It’s free to join, and is an easy way to add to your savings while doing the things you already do.

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College Ahead

The UpromiseSM Life Insurance Plan

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1 Earnings on non-qualified withdrawals are subject to federal income tax and may be subject to a 10% federal penalty tax, as well as state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements.