You have several alternatives for saving for your child's -- or for your own -- education.

The table below gives you a quick way to compare your choices.


The 529 College Savings Plan (not prepaid tuition)

Custodial Accounts for Minors

Coverdell Education Savings Account
(AKA Education IRA)

Part of Parents' Savings and Investment Accounts

Guidelines for Use of Assets

Qualified Expenses

Can be used for qualified higher education expenses, within limits, at any accredited post-secondary institution in the U.S. or abroad, including tuition, books, and room and board.

Use for Minor

If used by the custodian before the Minor reaches the age of majority, use must be for benefit of the Minor. No restrictions on Minor's use once age of majority reached.

Qualified Expenses

Must be used for qualified elementary, secondary or higher education expenses by the time beneficiary reaches 30 years of age.

Maximum Contribution Annual: Typically, none. 

Lifetime: As much as $300,000 in many plans.
None $2,000 per year
per beneficiary under age 18; by individuals who meet Adjusted Gross Income (AGI) limits.
Beneficiary Changes Can change anytime, without income tax ramifications, to any member of initial beneficiary's family (as defined in Internal Revenue Code Section 529). If new beneficiary is a generation below the old beneficiary, then there may be a gift  and GST tax consequence. N/A
Completed gift to a minor.
Can transfer balance to beneficiary's family member under 30 years of age without income tax ramifications only if new beneficiary is a generation below the old beneficiary. N/A
Who Controls Assets Account owner may name beneficiaries and direct distributions. Custodian must give up control when Minor reaches age 18 (or age of majority according to the state). Donor Owner
Adjusted Gross Income (AGI) Limit for Plan Contributions None None Limited
Phase out of contributions:
Single Filers: $110,000
Joint Filers: $220,000
Taxation of Earnings Earnings are federal tax-free if used for qualified higher education expenses. State tax consequences may vary. No Tax-Deferral.
Income and capital gains taxable to Minor (at parent's rate over certain limits for children under 14) unless income used to support Minor, then income taxable to person with obligation of support.
Distributions for qualified higher education expenses of designated beneficiary are free of federal income tax. State tax consequences may vary.  Distributions will be tax-free only for those who do not claim an American Opportunity or Lifetime Learning Credit (if eligible) for the same expenses in the same year. Earnings taxed at both federal and state levels in year realized.
Estate/Gift Tax Guidelines

Value Excluded from Account Owner's Estate.  

Individuals can contribute up to $15,000 annually ($30,000 if married and filing jointly) per beneficiary, or up to $75,000 ($160,000 if married and filing jointly) once within a 5-year period without triggering gift taxes. Generally, donor does not include account in estate. 

Value Included in Minor's Estate.

Individuals can gift up to $15,000 ($30,000 if married and filing jointly) each year to Minor. Assets included in donor's estate if donor is also current custodian and dies while the child is a minor.

Balance of Account Not Included in Estate. 

Gift counts against $15,000 ($30,000 if married and filing jointly) per beneficiary annual gift tax exclusion.  Generally, donor does not include account in estate.

Owner's Estate.

Account assets part of owner's estate.

Federal Tax Deductible Contributions No No No No
Taxation/Penalty for Non-Qualified or Early Withdrawals Earnings subject to income taxes at  your  tax rate plus a 10% federal income tax penalty. N/A Earnings portion only is taxed to you at ordinary rate and subject to 10% penalty. N/A