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Choosing the right college savings account can be a daunting task for the parents. If you choose the saving account early then it would potentially save your child from the negative long-term consequences. There are multiple methods to get you started and save your child from the student loan debt down the road. In the future when your child is in search of the financial aid or looking for scholarships, college savings account will be beneficial. By outlining the various options we will make the decision-making process easy for you.

As per the college board report, the annual fee for in-state residents for public universities are $11,000 annually whereas for private colleges it is $39,000 per year. This is the estimate for now but with the rising inflation if you consider this amount after 6,7 years then multiply this amount by four and that’s a big number to save.  For instance , if you have to pay the annual fee of $50,000 when your child reach the age of 18 , then you have to start saving the amount from now. You can do the quick math’s to have a rough estimate of savings and then choose the viable college savings account.

College Savings Account – Key Considerations

College Savings Account – Key Considerations

 The key consideration for the college saving account is as follows:

  •  Look  for the state tax benefits such as the sponsored 529 plans in which the earnings are not taxed until they are drawn for the qualified education expense
  •  Deeply analyze and evaluate the investment options that are offered by various plans. It is important to consider the annual fees , investment management fee, administrative fees associate with each plan.
  •  For the college saving account consider the contribution limit and restriction associated with the accounts. Some plans have a higher contribution limit that means that you can save substantial chunk of money in saving

College Savings Account – Make the Smart Choice

  • 529 plans
  • Other college savings account options (UTMAs, UGMAs, Roth IRA, Trusts)

A 529 college savings account will let you invest in the exchange, traded funds, mutual funds, and other exchange traded funds. While the other one tuition plan lets you lock the overall tuition cost and avoid the impact of the increasing tuition charges .

 529 College savings account

529 College savings account

 This one is the most renowned education-specific saving plan that offers two types of saving accounts namely investment saving account or prepaid tuition plan. 529 College savings account is a tax-advantaged investment vehicle that covers all sorts of educational expenses including tuition fees, books, room and other charges. This college account is very similar to a Roth IRA and has potentially higher contribution limits. Also, it is important to mention here that it’s solely for the educational expenses and does not include expenses like buying a car for the college. If you pay money for the nonqualified expenditures then 10% penalty will be charged.

529 Prepaid Tuition Plan

One of the viable ways to lock the money for the tuition charges is through the 529 Prepaid Tuition Plan. By paying the cost of attending a particular university, you can completely hide the tuition hike charges. For instance you pay for your eight semester beforehand to save the additional cost in dollars in future times.

 Although major concerns are  raised on this prepaid tuition plans but still some institutions agree to the tuition fee beforehand.  Some institutions have continued to operate the previous plans but have closed the program for the new students. As with the increasing concern about the future financial viability, restrictions are imposed on the prepaid tuition programs.

529 College savings account – Prepaid tuition vs Education Saving Plan

Feature529 Prepaid Tuition Plans529 Education Savings Plans
PurposeLock in tuition rates for future use at specific colleges or universities.Invest funds in numerous investment options to grow tax-deferred or tax-free.
StructureFixed tuition contracts.Investment accounts.
FlexibilityLimited flexibility in terms of changing beneficiaries and using funds for non-tuition expenses.More flexible, allowing funds to be used for a wider range of education expenses, including room and board, books, and supplies.
Tuition RatesTuition rates are locked in at the time of purchase.Tuition rates are not guaranteed and are subject to change.
Investment RiskNo investment risk, as the value of the tuition contracts is fixed.Investment risk is present, as the value of the investments can fluctuate.
Tax BenefitsOffers tax-deferred or tax-free growth on earnings.Offers tax-deferred or tax-free growth on earnings.
Account OwnershipCan be owned by the account beneficiary, the account owner’s spouse, or a family member.Can be owned by the account beneficiary, the account owner’s spouse, or other eligible individuals.
PortabilityMay not be portable, meaning funds may not be transferable to another state’s plan.More portable, allowing funds to be transferred to another state’s plan without penalty.
Contribution LimitsMay have lower contribution limits than education savings plans.May have higher contribution limits than prepaid tuition plans.

Pros and Cons of 529 Plans


  •  The contributions in the account ca be used any time by the student throughout the life
  •  The account can be easily changed for the benefit of the individual educational expenses
  •  There is no income restriction so it’s a better option college saving account
  •  This college saving account offers tax-free growth
  •  If parents own the account, then it has little impact on the financial aid awards


  •  The contributions can only be used to pay for the qualified educational expenses
  •  All the non-educational expenses are taxed

 Other College Saving Account Options

Other College Saving Account Options

 As planning for the child’s education is an important step in securing their future. The college saving account is a viable approach to ease the financial burden. There are plethora of other college saving account options you need to consider.

 Savings Account

 These type of accounts offer the flexibility to draw money for the non- educational expenses which is beneficial and disadvantageous at the same time. If you spend a huge sum of money on non- college expenses that it would result in a depleted college fund.


  • Offer the investment flexibility


  • The tax benefits and returns are most of the time below the rate of inflation

 Roth IRA

This one is another option in the list of the collecting saving account . These are tax advantage retirement accounts that can also be used to save money for your child’s education. This retirement plan is less restrictive in comparison with the other retirement plan options.


  •  The funds in this account can be utilized for the child education or for the retirement life , as per your preference
  •  With this account you can easily withdraw the money tax-free as it is regarded as the qualified distribution
  •  The amount you save in this account is tax-free


  •  The contribution limit is lesser only $6,000 per year and for age bracket above 50 it is $7,000
  •  The earnings that you withdraw before the age of 59 from this account is  half taxed

How to save for retirement

 As with each passing day, the importance of securing a good retirement fund cannot be overstated. The tax – advantaged retirement accounts like 401(k) plan and Roth IRA are the viable approaches to build a retirement nest egg.


UTMA or UGMA accounts are also a good option as college savings account because they can help you hold the fund for minors until they reach a certain age. The recipient will be hold in charge of the account in majority of the cases in the age bracket of 18-21. 


  •  Funds can be used for educational purposes as well as for other investment purposes
  •  In this type of account anyone can easily make contribution in the form of bonds, mutual funds, and stocks


  •  Can potentially lower the amount of the need based financial aid for the student

 Frequently Asked Questions

What is the best type of college savings account?

 The best type of the college saving account is 529s. As they give users a tax advantage so they are primarily more advantageous for the students in the long run.

What are the three major types of savings account?

The three most common types of saving accounts are as follows:
1. Regular savings account
2. Money market accounts
3. Certificate of deposit


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