What Are Some Choices for College Savings Funds?


Quick Answer

Choices for college savings funds include 529 college savings plans, 529 prepaid tuition plans and Coverdell education savings accounts, reports CNN Money. Individual states sponsor 529 savings and prepaid plans, and the quality, contribution limits and restrictions vary from state to state. Coverdell accounts, previously known as Education IRAs, have uniform federal guidelines.

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What Are Some Choices for College Savings Funds?
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Full Answer

As of 2015, although 529 savings plans do not have yearly contribution limits, they are subject to federal annual gift tax limitations of $14,000 per donor, explains CNN Money. Lifetime contribution limits vary by state. Contributions are not tax deductible, but investment growth is tax-deferred, and students can withdraw funds tax-free if they use the distributions for qualified educational expenses. Investors can open 529 savings plans in any state, but they may find extra benefits in opening accounts in their home states, points out U.S. News & World Report. The owner of the account maintains control and can transfer it to another beneficiary if the original beneficiary doesn't need it.

Prepaid tuition plans allow parents or other donors to lock in current tuition prices for future education, according to CNN Money. Not all states offer them, and those that do often require the beneficiary or account owner to be state residents. Only those whose adjusted gross income falls below a federally mandated limit are eligible to open Coverdell accounts for beneficiaries, states the Internal Revenue Service. The IRS limits contributions per beneficiary to $2,000 annually.

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