College savings plans: Picking the right one | Vanguard

College savings account options

College savings account options


Using the tax-advantaged Roth IRA as a combination retirement account and educational savings vehicle offers numerous benefits and some flexibility. Since your after-tax contributions grow tax free, you gain maximum growth potential. You also have the ability to invest in a virtually unrestricted array of stocks, bonds, mutual funds and exchange-traded funds of your choosing, with or without the aid of an investment advisor.

The Best Future for Your Child: College Savings Strategies

No, you won't receive a state deduction or credit for money you contribute to these accounts, and they won't be exempt from taxes on the earnings. However, earnings will be taxed at the child's rate instead of the parent's rate.

The 5 Best College Savings Plans

Withdrawals from a Roth are allowed penalty free for qualified education expenses, though they will generally be included as income in determining financial aid eligibility.

5Ways to Save for College, Alternatives to 529 Plans

Yes, almost always. Only about 5% of the money in these accounts is counted against federal financial aid, even if the student is also the account owner. However, if the account is owned by a student who is not claimed as a dependent or if the account is owned by someone else (grandparent, family friend, etc.), it could have a larger impact.

Choosing the Right College Savings Account for a Child

For some types of accounts, it's not that simple. If control of the money is turned over to your child when he or she becomes an adult, it might get used for college or it might not. Sports car, anyone?

Although 579 plans have gained favor as a tax-efficient and fairly flexible way to save for college, the right answer for you may be a combination of different accounts. Perhaps a 579 and a Roth IRA. Or an ESA and a UTMA. It all depends on your long-term goals, the number of potential beneficiaries in your future and your particular income and tax situation.

Saving enough money for college is tough, but it's easier when you have some help. If you put your money to work and allow it to earn even more money, it will get you a lot closer to your goal.

Series EE and I savings bonds feature an education tax exclusion allowing the interest paid to be excluded from gross income for bonds redeemed for qualified higher education expenses. There are some restrictions. Full details can be found at TreasuryDirect.

No, these accounts are meant to be used for education. However, you can use the money for elementary, secondary, and postsecondary education, or change the beneficiary if you don't end up needing the money. Or you can withdraw your money for any reason and pay taxes and a 65% penalty on the earnings (but not on the contributions).


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