Smart Saving for College—Better Buy Degrees

College Savings Plan Comparison Chart¹

 

	529 College Savings Plan	529 Prepaid Tuition Plan	Education Savings Account	Custodial Accounts	Savings Bonds
Ownership/ Control	Contributor	Contributor	Contributor	Custodian until child reaches age of majority	Contributor
Investment Choices	Typically, plans provide several investment options.	None	No restrictions	No restrictions	Savings bonds
Age Limits	None	Plan 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 child	Owner 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 education	With a few exceptions, only tuition and mandatory fees for post-secondary education are covered.	Qualified elementary and secondary education expenses or qualified higher education expenses	No restrictions on types of expenses	Tuition 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 $200,000 per beneficiary.	Fixed by terms of contract you purchase	Contributor: $2,000 per beneficiary per year Beneficiary: $2,000, does not matter how many ESAs are set up.	No limit	No 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.	None	None	Interest is usually tax-exempt from state and local taxes.
Income Phase-Out	None	None	Single filers: $95,000 – $110,000 Joint filers: $190,000 – $220,000	None	Single Filers: $70,100 – $85,100 Joint Filers: $105,100 – $135,100
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.	None	Interest earned is taxed as income.

 

1 Filing information as of 2010. See IRS Publication 970 for 2011 updates.