What's the best way to save for college?

To help you choose the best college savings option, here's how each plan stacks up in the categories that matter most.

529 COLLEGE SAVINGS PLAN

Maximum contribution:

Annual: Typically, none. But gift tax laws are in flux, so check them before you make a donation of more than $13,000 per person.

Lifetime: As much as $300,000 in many plans.

Tax treatment:

Federal: Tax-deferred growth, tax-free withdrawals for college expenses.

State: Many states provide tax benefits to residents using their plan.

Financial aid impact: Maximum of 5.64% of value will count against you.

Restrictions on withdrawal and spending: Withdrawals must cover qualified higher education expenses.

Potential problems: Limited investment options. Some states funds have comparatively high expense ratios.

529 PREPAID TUITION PLAN

Maximum contribution:

Annual: Typically, none. But gift tax laws are in flux, so check them before you make a donation of more than $13,000

Lifetime: Up to $220,000 in some plans

Tax treatment:

Federal: Tax-deferred growth, tax-free withdrawals for tuition.

State: Many states provide tax benefits to residents using their plan.

Financial aid impact: Maximum of 5.64% of value will count against you.

Restrictions on withdrawal and spending: Withdrawals only cover tuition.

Potential problems: Some plans are facing financial difficulties and may not have the funds to meet their obligations.

PERMANENT LIFE INSURANCE

Maximum contribution: None.

Tax treatment:

Federal: Tax-free access to the cash value of your policy.

Financial aid impact: These assets are not counted against you in financial aid.

Restrictions on withdrawal and spending: None.

Potential problems: High fees for withdrawing money within the first few years.

ROTH IRA

Maximum contribution:

Annual: $5,000.

Lifetime: Depends on income.

Tax treatment: Federal: Tax-deferred growth, and tax free withdrawals after you turn 59-1/2. Contributions can be withdrawn tax-free if used for college.

Financial aid impact: These assets are not counted against you in financial aid.

Restrictions on withdrawal and spending: None (10% early withdrawal penalty waived for qualified higher education expenses).

Potential problems: Earnings are subject to income tax and withdrawals can impact future financial aid eligibility.

NEXT: What's the best 529 savings plan for you

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