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. 

Consider your savings goals, along with any tax benefits your state offers, as you compare 529 plans, ESAs, and custodial accoun
  • 529 Plan
  • Education Savings Account
  • Custodial Account
  • What is it?
  • 529 Plan
    A state-sponsored, tax-deferred college investment account 
  • Education Savings Account
    An education savings account set up and managed by a parent or guardian for the benefit of a minor child 
  • Custodial Account
    A brokerage account that’s managed by a custodian and can be used for college or any other purpose
  • Earnings
  • 529 Plan
    Tax-deferred 
  • Education Savings Account
    Tax-deferred 
  • Custodial Account
    For 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 $2,500 of a child's unearned income is tax-free, amounts over the $2,500 threshold will be taxed at the parents tax rate. See IRS Publication 929 for more detail.
  • Amount you can contribute
  • 529 Plan
    Up to $85,000 ($170,000 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 Account
    N/A
  • Custodial Account
    Up to $17,000 ($34,000 per couple) per beneficiary in a single year
  • Withdrawals 
  • 529 Plan
    Free of federal income taxes when used for qualified education expenses2
  • Education Savings Account
    Free of federal income taxes when used for qualified education expenses2
  • Custodial Account
    No tax advantage
  • Contribution limits 
  • 529 Plan
    Lifetime limit for each beneficiary that varies by state; $475,000 on average3
  • Education Savings Account
    $2,000 per year, subject to adjusted gross income limitations4
  • Custodial Account
    No limit
  • Penalty for nonqualified use 
  • 529 Plan
    Earnings are taxed as ordinary income and may be subject to a 10% federal penalty 
  • Education Savings Account
    Earnings are taxed as ordinary income and may be subject to a 10% federal penalty 
  • Custodial Account
    N/A
  • Investment choices
  • 529 Plan
    Choose from pre-defined asset allocation portfolios 
  • Education Savings Account
    Managed by a parent or guardian 
  • Custodial Account
    Managed 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 Plan
    529 plans are counted as assets of the parent or account owner in determining financial aid 
  • Education Savings Account
    ESAs are counted as assets of the parent or account owner in determining financial aid 
  • Custodial Account
    May significantly impact financial aid
  • Age limits
  • 529 Plan
    None for beneficiaries 
  • Education Savings Account
    Contributions can be made until the beneficiary reaches age 18; funds must be distributed to the beneficiary by age 30
  • Custodial Account
    Beneficiary 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 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.

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