Beyond 529 Plans – Alternative College Savings Strategies 

Many people save for college with 529 plans, but they are not the only way to do it. You can save money for your child’s college education with the help of different financial tools that a CPA Savannah, GA, can help you with. 

What are 529 plans? 

529 plans are tax-advantaged savings accounts that are only for saving for college. Most contributions grow tax-free, and payments used for qualifying educational expenses are also tax-free. 

Because of this, they are a great way to save money for college. However, 529 plans might not be as flexible as other investments, and they might affect your ability to get financial help. 

Some alternatives to a 529 plan. 

Instead of saving for college, you could do any of the following, each with its own pros and cons:

  1. Savings accounts. 

An easy and clear choice is a regular savings account. They usually have low interest rates, and you can get the money quickly if you need it for anything, even college.

  1. Roth IRAs. 

Roth IRAs are savings funds that can be used for certain college costs. Money put into a Roth IRA grows tax-free, and eligible exits are also tax-free. There are, however, limits on how much you can put in and fines for taking money out before retirement age that are not used for approved school costs.

  1. Brokerage accounts. 

Brokerage accounts give you more choices for how to put your money than 529 plans. There are many things you can trade in, like stocks, bonds, and mutual funds. However, trading accounts are not as tax-friendly as 529 plans, and the investments you make may lose or gain value.

  1. Custodial accounts. 

A minor’s custodial account is a financial account that is managed by a caretaker, who is usually a parent or guardian. You can use the money in the account for anything, even college. However, the child takes over the account when they reach the age of majority, which is usually 18 or 21.

  1. Coverdell Education Savings Accounts (ESAs).

ESAs are another way to save for college and help you save on taxes. Contributions grow tax-free, and payments used for qualifying school costs are also tax-free. However, you can not put as much money into an ESA as you can into a 529 plan. 

How do you choose the right option? 

The best way for you to save money for college will depend on your specific needs. Here are some things to think about:

  1. The time frame for investment. 

How long do you have to pay for school? If you have a lot of time, a trading account lets you take on more risk with your investments.

  1. Tolerance for risk. 

How comfortable are you with taking risks with your money? Do not want to take risks? A savings account or 529 plan might be a better choice for you.

  1. Eligibility for financial aid. 

How important is it that your child can get financial aid? 529 plans may change your ability to get financial help in a way that is slightly different from other choices.

  1. Tax advantages. 

How important are tax breaks to you? You can grow your money in 529 plans and ESAs tax-free, and you can take money out tax-free for approved school costs. 

Some additional things you can consider. 

  • Life insurance policies: Some types of life insurance can help you save money for college. When the covered person dies, these plans can give their family a lump sum payment that can be used for college costs.
  • Benefits paid for by the employer: As part of their benefits packages, many companies offer college savings plans. There may be matching payments or other rewards in these plans.
  • Community-based programs: Some towns may have college savings programs that help people save money and give them access to training materials. 

529 plans are a good way to save for college, but they are not the only choice. You can choose the best way to receive money to help your child reach their school goals by carefully considering your own needs and objectives.