15 Sep College Savings Account Options: A Guide
If you have a child’s college education to save for, there are several different account types that you might use. Here are some of the most common.
529 College Savings Plan
The 529 college savings plan is the main savings account for educational expenses. You can contribute up to the maximum each year (and so can a spouse or partner), and any earnings that the account grows are tax-free if they’re used for educational expenses.
College tuition, textbooks, and room and board during semesters all qualify as educational expenses. So do private school tuition and other school-related costs.
Few other accounts match the tax benefits of the 529 savings plan, when spending on education.
Coverdell ESA
The Coverdell Educational Savings Account offers similar tax benefits, not taxing contributions or growth that’s used for educational expenses. Educational expenses again include college costs, and school costs for primary or secondary school.
Compared to the 529 college savings plan, ESAs typically have more investment options because their programs aren’t dictated by states. ESAs generally don’t qualify for tax deductions, though.
The contribution limits for ESAs are much lower than the limits for 529 plans. This type of account can supplement a 529 if you max out the contribution limit for the 529 first.
Brokerage Account
Outside of the two aforementioned accounts, a standard brokerage account is the other main account type that might be used for college savings. A brokerage account offers great flexibility, but it has no tax benefits.
Most people only open a brokerage account for college savings if they’ve already maxed out the previous two account types.
Roth IRA
A Roth IRA is a retirement savings account, and it affords excellent tax benefits for retirement savings. If you’re set for retirement and need funds, however, contributions usually can be withdrawn from a Roth IRA without penalty or tax. They typically have to remain in the account for a set time, but then can be accessed without issue.
Get Help Saving for College
For more information on the various accounts that can be used to save for college, contact us at Accolade Financial. We can help you review which account(s) you should be using.