529 College Fund Alternatives
Other ways to save, looking beyond the 529 plan.
NEW YORK (MONEY Magazine) - A 529 plan isn't your only college savings option. And in some circumstances, another investment is the better choice.
Investment choices: Broad. Most brokerage and fund companies offer CESAs
Contribution limits: Low. $2,000 a year per child. To qualify, your adjusted gross income must be less than $110,000 for a single filer or $220,000 for those married filing jointly.
Tax benefits: Good. Earnings are tax-free as long as they are used for qualified education expenses, which can include elementary and high school costs.
Financial aid treatment: Good. Same treatment as 529 plans.
Best for just about any family, but especially those with substantial elementary or high school expenses.
Investment choices: Broad. You can set up accounts at most financial institutions.
Contribution limits: None. But gifts of more than $11,000 per child ($22,000 if both parents contribute) are subject to the gift tax.
Tax benefits: Okay. If the child is age 13 or under; first $800 of income is tax-free, the next $800 is taxed at their rate; any more income is taxed at parents' rate.
Financial aid treatment: Poor. The account is considered the child's asset, so federal aid formulas assess it at a 35 percent rate.
Best for families that don't need aid. If you already have a substantial amount in a custodial account and think you could get aid, spend down the balance.
Investment choices: Broad. You can invest in just about any stock, bond or mutual fund.
Contribution limits: None.
Tax benefits: Also none. But you can keep taxes down by investing in tax-efficient index funds.
Financial aid treatment: Good. Parents retain ownership of the account.
Best for families that hope to get need-based financial aid.
A winning college savings plan: 529 plan tips
Getting started saving for college: Build an A+ college savings plan