Contents
College Savings Fundamentals
How Much Will College Cost?
Prepaid Tuition 529 Plans
State 529 College Savings Plans
Private 529 College Savings Plans
Coverdell Savings Accounts
College Savings Withdrawals
How to Choose a College Savings Plan
Alternatives to College Savings Plans
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How to Choose a College Savings Plan
With so many possible college savings plan options and variations, it’s impossible to say which plan is the “right plan” for you. Since it’s possible to own more than one plan, in some cases a mix of several types of plans may make the most sense. For instance, you might want to open a Coverdell to fund your child’s K–12 education-related expenses but also open a state 529 savings account to begin saving for college-related expenses. The best way to determine which plan, or mix of plans, suits you and your family is to:
- Compare the types of plans that are available in your state
- Research plan providers that serve your state
- Choose and contact a provider to establish your accounts
Comparing the Types of Plans that Are Available in Your State
The previous sections of this guide provide detailed breakdowns of the four types of plans in the table below, including guidelines on which plans are available in which states. The table below offers a quick reference to help you assess which of the plans that are available in your state might be right for you.
Plan Type |
Contribution Limits |
Residency Limits |
Qualified Expenses |
Best if you . . . |
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Coverdell ESA |
$2,000 per year |
None |
Various K–12 and post-secondary education-related expenses (not just tuition) |
. . . don’t have large sums to invest but want to save in a tax-deferred account and want total control of which investments the account holds |
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Prepaid state 529 plan |
$50,000–100,000 total (as of 2006) |
Beneficiary and contributor must be state residents (except in MA and AL) |
Tuition and required fees only |
. . . are certain the student will attend a state university in the state in which you and the student reside (and will continue to reside) |
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State 529 savings plan |
$235,000 total (national average as of 2006) |
None |
Various post-secondary education-related expenses (not just tuition) but not K–12 |
. . . want to contribute more money than Coverdells allow and are fine paying fees and giving up control of your account’s assets |
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Private 529 savings plan |
$171,000 total (as of 2006) |
None |
Tuition and required fees only |
. . . are almost certain that the student will attend a private institution that is part of the plan |
Researching Plans that Are Available in Your State
Once you’ve chosen one or more college savings plans to pursue, you need to research which providers offer those plans in your area. The best place to start your research is online at one of these three websites:
- College Savings Plans Network (www.collegesavings.org)
- Morningstar (www.morningstar.com)
- Saving for College (www.savingforcollege.com)
Morningstar
Morningstar, the leading source of mutual fund–related research and information, is expanding into other investing and personal finance areas, including college savings. Registration is free, and registered users get access to nearly all of the site’s college savings–related content, which includes a large amount of searchable data and unbiased articles. Morningstar provides an easy way to research plans and read commentary about the latest developments in the college savings industry all in one place. To get started, search for “college savings” on the Morningstar website.
Saving for College
Saving for College rates and ranks prepaid state 529 plans, state 529 savings plans, and private 529 plans. It also lets you search for plans available in your area. Most of the site’s features and data are accessible for free once you register. Its most helpful features include:
- “5-Cap Ratings” system: Rates all state and private plans from 1–5 “caps” (five caps being the best). Ranking criteria include the number of investment options, plan fees, contribution limits, ease of rollover, and more.
- Screening function: Enables you to screen for plans by type of plan, location, and more—up to six criteria at once. Each screen you run generates a side-by-side list that compares specific plans.
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