College Savings Plans
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.
On this page:
Compare accounts to see what's best for you
Consider your savings goals, along with any tax benefits your state offers, as you compare 529 plans, ESAs, and custodial accounts.
- 529 Plan
- Education Savings Account
- Custodial Account
What is it?>
529 PlanA state-sponsored, tax-deferred college investment account>
Education Savings AccountAn education savings account set up and managed by a parent or guardian for the benefit of a minor child>
Custodial AccountA brokerage account that’s managed by a custodian and can be used for college or any other purpose>
Education Savings AccountTax-deferred>
Custodial AccountFor a child under the age of 19 considered a dependent at the end of year (or a full-time college student under the age of 24), the first $2,200 of child's unearned income is tax-free, amounts over the $2,200 threshold will be taxed at the rates for trusts and estates. See IRS Publication 929 for more detail.>
Amount you can contribute>
529 PlanUp to $75,000 ($150,000 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 years1)>
Education Savings AccountN/A>
Custodial AccountUp to $15,000 ($30,000 per couple) per beneficiary in a single year>
529 PlanFree of federal income taxes when used for qualified education expenses2>
Education Savings AccountFree of federal income taxes when used for qualified education expenses2>
Custodial AccountNo tax advantage>
529 PlanLifetime limit for each beneficiary that varies by state; $435,000 on average3>
Education Savings Account$2,000 per year, subject to adjusted gross income limitations4>
Custodial AccountNo limit>
Penalty for nonqualified use>
529 PlanEarnings are taxed as ordinary income and may be subject to a 10% federal penalty>
Education Savings AccountEarnings are taxed as ordinary income and may be subject to a 10% federal penalty>
529 PlanChoose from pre-defined asset allocation portfolios>
Education Savings AccountManaged by a parent or guardian>
Custodial AccountManaged 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 Plan529 plans are counted as assets of the parent or account owner in determining financial aid>
Education Savings AccountESAs are counted as assets of the parent or account owner in determining financial aid>
Custodial AccountMay significantly impact financial aid>
529 PlanNone for beneficiaries>
Education Savings AccountContributions can be made until the beneficiary reaches age 18; funds must be distributed to the beneficiary by age 30>
Custodial AccountBeneficiary 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.