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College Savings Plans

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Questions?

Call us at 888-213-4695 or visit your local branch.

There are two types of tax-advantaged college savings plans designed to help you save for your children’s college education: 529 plans and Education Savings Accounts (ESAs). These have many advantages over custodial, general brokerage, and savings accounts.

Consider your savings goals, along with any tax benefits your state offers, as you compare 529 plans, ESAs, and custodial accounts.

529 plan ESA Custodial account
What is it? A state-sponsored, tax-deferred college investment account An education savings account set up and managed by a parent or guardian for the benefit of a minor child A brokerage account that’s managed by a custodian and can be used for college or any other purpose
Earnings Tax-deferred Tax-deferred Child under 19 (or under 24 if a full-time college student):1 First $1,050 tax-free, next $1,050 taxed at child’s rate, and amounts over $2,100 taxed at parents’ rate

Child 19 and over (or 24 and over if a full-time college student):1 First $1,050 tax-free, and any amount over $1,050 taxed at child’s rate
Amount you can contribute without owing gift taxes Up to $70,000 ($140,000 per couple) per beneficiary in a single year (if you elect to recognize that gift over five years for tax purposes and make no additional gifts to that beneficiary over the next five years2) N/A Up to $14,000 ($28,000 per couple) per beneficiary in a single year
Withdrawals Free of federal income taxes when used for qualified education expenses3 Free of federal income taxes when used for qualified education expenses3 No tax advantage
Contribution limits Lifetime limit for each beneficiary that varies by state; $300,000 to $400,000 on average4 $2,000 per year, subject to adjusted gross income limitations5 No limit
Penalty for nonqualified use Earnings are taxed as ordinary income and may be subject to a 10% federal penalty Earnings are taxed as ordinary income and may be subject to a 10% federal penalty N/A
Investment choices Choose from pre-defined asset allocation portfolios Managed by a parent or guardian Managed by a custodian until the account is turned over to the beneficiary (at age 18, 21, or 25, depending on the state of registration)
Impact on financial aid 529 plans are counted as assets of the parent or account owner in determining financial aid ESAs are counted as assets of the parent or account owner in determining financial aid May significantly impact financial aid
Age limits None for beneficiaries Contributions can be made until the beneficiary reaches age 18; funds must be distributed to the beneficiary by age 30 Beneficiary must be under age 18

If possible, start saving early, invest regularly, and contribute as much as you can afford.

What you can do now:

  • Read more about strategies for success.
  • Review projected college costs for in-state, out-of-state, and private institutions.
  • Use our budget planner to see how much you can set aside every month for college savings.
  • Consider setting up automatic investing to help make consistent progress toward your goals.
  • Open a college savings account online.

Ready to get started with Schwab?

Call 888-213-4695.

Already a Schwab client?

Contact your Financial Consultant or call us anytime at
888-213-4695.