How to Save for Your Child's Future: 529 Plans and Other Options
🇩🇪 Diesen Artikel auf Deutsch lesenFor college savings, a 529 plan is usually the first choice: investments grow tax-free and withdrawals for qualified education expenses are tax-free, and many states offer a deduction. Custodial accounts are more flexible but become the child's money at adulthood. Prioritize your own retirement first — loans exist for college, not for retirement.
Starting early lets compound growth do much of the work. Even small monthly amounts add up over 18 years.
Compound Interest CalculatorSee how your savings grow over timeTry the calculator →Main options compared
| 529 plan | Custodial account (UTMA/UGMA) | Roth IRA (parent) | |
|---|---|---|---|
| Tax benefit | Tax-free growth for qualified education | Limited; “kiddie tax” rules apply | Tax-free growth; contributions can be withdrawn |
| Who controls it | Account owner (usually parent) | Child at age of majority | Parent |
| Use of money | Education (with some flexibility) | Anything that benefits the child | Retirement or education |
| Financial aid impact | Relatively low if parent-owned | Higher (child's asset) | Retirement assets usually not counted |
529 plan details
- Qualified expenses include college tuition, fees, books and room and board, plus some K–12 tuition and apprenticeship costs.
- Many states give a state income tax deduction for contributions to their own plan.
- Unused money can be transferred to another family member. Under current rules, a limited lifetime amount can also be rolled into a Roth IRA for the beneficiary if the account has been open for many years.
- Non-qualified withdrawals pay income tax plus a 10% penalty on earnings.
Retirement first
Financial planners often recommend securing your own retirement savings and emergency fund before funding college. Students can borrow for college; you can't borrow for retirement.
Frequently asked questions
What if my child doesn't go to college?
You can change the beneficiary to another family member, use the money for eligible training programs, roll a limited amount into a Roth IRA under current rules, or withdraw it with tax and penalty on the earnings.
Can I use any state's 529 plan?
Yes. You can invest in another state's plan, but you may only get a state tax deduction for your own state's plan.