Smart Saving for College—Better Buy Degrees

College Savings Plan Comparison Chart1

 

 529 College
Savings
Plan
529 Prepaid
Tuition
Plan
Educational
Savings
Account
Custodial
Accounts
Savings
Bonds
Ownership/
Control
ContributorContributorContributorCustodian until child reaches age of majorityContributor
Investment
Choices
Typically, plans provide several investment options.NoneNo restrictionsNo restrictionsSavings bonds
Age
Limits
NonePlan may set age or grade limits.Except for special needs children, no contributions can be made after a child reaches age 18, and withdrawals must be made before beneficiary reaches age 30.Minor childOwner must be at least 24 before the bond's issue date (not purchase date).
Expenses
Covered
Besides
Tuition
and Fees
Qualified education expenses for post-secondary educationWith a few exceptions, only tuition and mandatory fees for post-secondary education are covered.Qualified elementary and secondary education expenses or qualified higher education expensesNo restrictions on types of expensesTuition and mandatory fees for post-secondary education and contributions to 529s and ESAs
Contribution
Limit
Varies from plan to plan. Majority of plans permit total contributions in excess of $250,000 per beneficiary.Fixed by terms of contract you purchaseContributor: $2,000 per beneficiary per year

Beneficiary: $2,000, does not matter how many ESAs are set up.
No limitNo limit
Federal
Tax
Advantages
Earnings grow tax-deferred and are tax-free if used for qualified education expenses.Earnings grow tax-deferred and are tax-free if used for qualified education expenses.Earnings grow tax-deferred and are tax-free if used for qualified education expenses.$950 in earnings are tax-free.Interest grows tax-deferred and is tax-free if used for qualified education expenses.
State
Tax
Advantages
Varies from state to state, but some states provide tax deduction for contributions, tax-free earnings growth and tax-free withdrawals for qualified education expenses.Varies from state to state, but some states provide tax deduction for contributions, tax-free earnings growth and tax-free withdrawals for qualified education expenses.NoneNoneInterest is usually tax-exempt from state and local taxes.
Income
Phase-Out
NoneNoneSingle filers:
$95,000 – $110,000

Joint filers:
$190,000 – $220,000
NoneSingle Filers:
$72,850 – $87,850

Joint Filers:
$109,250 – $139,250
Penalties
for
Non-Qualified
Withdrawals
Earnings are taxed as ordinary income and may be subject to 10-percent penalty.Earnings are taxed as ordinary income and may be subject to 10-percent penalty.Withdrawals that exceed the beneficiary's education expenses for the year may be taxable.NoneInterest earned is taxed as income.

 

1 Filing information as of 2012. See IRS Publication 970 for 2013 updates.

 

 

 

 

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