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>
-
Earnings>529 PlanTax-deferred>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 $2,600 of a child's unearned income is tax-free, amounts over the $2,600 threshold will be taxed at the parents tax rate. See IRS Form 8615 Instructions for more details.>
-
Gift tax contribution limits>529 PlanUp to $18,000 ($36,000 per couple) per beneficiary in a single year1>Education Savings AccountUp to $18,000 ($36,000 per couple) per beneficiary in a single year1>Custodial AccountUp to $18,000 ($36,000 per couple) per beneficiary in a single year1>
-
Withdrawals>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>
-
Rollover to a Roth IRA>529 PlanRollover to a Roth IRA with a lifetime maximum of $35,000 per account beneficiary>Education Savings AccountN/A>Custodial AccountN/A>
-
Contribution limits>529 PlanLifetime limit for each beneficiary that varies by state. Most states set the limit in the $300,000–$500,000 per beneficiary range3>
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>Custodial AccountN/A>
-
Investment choices>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>
-
Age limits>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>
Prepare as much as possible
If possible, start saving early, invest regularly, and contribute as much as you can afford.
What you can do now
- Read more about how to avoid key mistakes.
- Use college savings calculator to understand 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.
contact
-
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