Saving for college: What to know about your options

After you know how much to set aside toward achieving your college saving goals, your next step is exploring options to help make that possible based on your priorities, long-term goals and tax situation.

Given the variety of choices available, we will help you develop tax-advantaged strategies that make sense for you and your other long-term goals. Here’s what to consider as you choose the right saving vehicle for your situation.

In this article:

  1. Start with your savings goal
  2. Consider the pros and cons of different tax-advantaged savings options
  3. Implement your plan
  4. Questions to discuss with us

1. Start with your savings goal

Estimating how much to save gives you a target to strive for and helps you determine which saving vehicle best fits your goals. It doesn’t have to be exact. You can always change the goal as your child’s interests and aspirations change. Consider using our college savings calculator to determine how much you may need to start saving.


 2. Consider the pros and cons of different tax-advantaged saving options

529 plan 

One of the popular options to save for college is a 529 plan, which is a tax-advantaged account primarily intended for higher education expenses.

A 529 plan allows an individual to contribute after-tax money into an investment account on behalf of a designated beneficiary. Almost all U.S. states offer a 529 plan, and investors are generally free to shop around for a plan that works for them, regardless of their residency status.

Here are some pros and cons:



  • Contributions grow tax-deferred, and withdrawals are tax free as long as they are used for qualified education expenses, which include tuition, room and board, books, fees and even student loan repayment.
  • Convenient way for extended family to contribute: Allows a parent, grandparent (or almost anyone) to invest money on behalf of the plan’s specified beneficiary (typically a child or grandchild).
  • No income limits: No income constraints on account owners.
  • No age limits: Beneficiaries can be any age.
  • Flexibility and control over beneficiaries: The owner can easily change the beneficiary to transfer unused assets.
  • Potential for additional state tax benefits: Some states offer additional tax benefits if residents use their 529 plan.
  • Can move unused funds into a Roth IRA: Beginning in 2024, unused funds in 529 plans that are at least 15 years old can be transferred to the beneficiary’s Roth IRA, up to annual income and lifetime limits.
  • Only cash contributions are accepted: (e.g., checks, money orders, credit card payments). You can't contribute stocks, bonds or mutual funds.
  • Impact on financial aid: Contributions and distributions may affect need-based financial aid.
  • Fees: Annual expenses and fees for maintaining the accounts can add up.

Bottom line: A 529 plan can be a powerful college saving vehicle. There are many reasons why these are a popular account for education goals, but it’s necessary to understand how it works before you can take full advantage of it.

Coverdell Education Savings Account

Formerly known as an Education IRA, a Coverdell Education Savings Account (ESA) is a college savings option similar to a 529 plan in that contributions grow tax-deferred — but come with more limitations.



  • Contributions grow tax-deferred, and withdrawals are tax free as long as they are used for qualified education expenses, which include tuition, room and board, books, fees and even student loan repayment.
  • Investment options: There are generally more investment options available with a Coverdell than with a 529 plan.
  • Withdrawals can be used toward private school tuition, tutoring and computers, tax-free: The child must use the funds before age 30 unless they are a special needs beneficiary.




  • Smaller contribution limit: Families can only contribute a maximum of $2,000 per year per child to an ESA.
  • Income limits on the account owner: In 2023, the limit is $110,000 for single filers and $220,000 for married couples.
  • Age limit on beneficiaries: Contributions to the account must generally be made before the beneficiary turns 18.
  • Limited withdrawal window: Any assets in the account must be withdrawn before the beneficiary turns 30.
  • Impact on financial aid: Contributions and distributions may affect need-based financial aid.
  • Fees: Annual expenses and fees for maintaining the accounts can add up. 

Bottom line: A Coverdell ESA can be a useful vehicle, but it offers less flexibility and savings potential than a 529 plan.

Cash-value life insurance

With a cash-value life insurance policy, a portion of your premiums goes toward a death benefit and another portion is allocated into a cash-value account. When properly structured, you can take out an income tax-free loan against your cash value to pay for school.



  • Not counted by the FAFSA: Life insurance is not counted as a parental asset in the Free Application for Federal Student Aid (FAFSA).
  • Flexibility with cash value: The policy’s cash value can be used for any costs — not just qualified educational expenses. For example, it can be used to pay down consumer debt as you’re saving for college or help pay off student loans later.
  • Low-interest and tax-free loan: You need to borrow against the cash value of the policy.
  • Impact on death benefit: Taking a loan against the cash value will affect the net death benefit. 
  • Affordability: It may not be the most affordable option for saving since it can take time for the cash value to outgrow the cost of premiums.
  • Fees: Annual expenses and fees for maintaining the accounts can add up.


Bottom line: Permanent life insurance can offer investors an alternative way to pay for their student’s educational expenses. But college savings shouldn’t be the primary goal when deciding whether to open a policy.

Other solutions

In addition to the above vehicles, below are a few other college saving options. Please note: These options don’t have the same tax advantages as the accounts mentioned above and generally aren’t as optimal for college saving goals.

Brokerage accounts

The biggest benefit of using a traditional investment account to fund your child’s college is the flexibility and freedom it offers. Unlike 529 plans, these accounts don’t have limitations on how you spend your assets, what funds you can invest in or how much you can contribute.

However, you won’t receive any of the tax advantages if you were to use a 529 plan or Coverdell ESA. Instead, after-tax dollars fund brokerage accounts, and withdrawals are taxed as capital gains.

Bottom line: Using traditional brokerage accounts to save for your child’s education is not a tax-efficient method. However, these accounts offer more flexibility than tax-advantaged college savings options. If you are willing to forgo potential tax savings in favor of more flexibility with their college funds, then a brokerage account may be a good option.

Savings accounts/CDs

While traditional savings accounts and certificates of deposits (CDs) may keep your money out of the market and can be lower risk, their earning potential doesn’t make them an ideal long-term college savings option for parents seeking to pay big expenses, such as tuition. Generally, the rate of return on these types of accounts doesn't keep pace with inflation or rising college expenses.

In many cases, these accounts are better used to build a cash reserve and save for less significant college costs that have a shorter time horizon and don’t count as a qualified higher education expense. For example, if your child is a year out from college and you want to help furnish their dormitory, a savings account is a smart place to accumulate funds for that short-term goal.

Bottom line: Savings accounts and CDs are not long-term solutions for saving for big college expenses, such as tuition and room and board. However, as you get closer to your student’s college years, savings accounts and CDs can be helpful vehicles to keep your money liquid for smaller expenses.

Retirement accounts

Before you redirect retirement assets to your child’s college costs, consider the implications. If you withdraw from a 401(k) or an IRA to fund your child’s college costs, you may be subject to additional costs, such as income tax or early withdrawal fees, and you are also impacting your future retirement income. Overall, using a retirement account is generally not advisable to save for a child’s college expenses.

Bottom line: When it comes to balancing retirement and saving for college, retirement should be your priority. Remember: You can’t get a loan to fund your retirement years.

3. Implement your plan

Once you’ve settled on the college savings options that work for you, it’s time to open your preferred account and start saving to help reach your education goal(s).

Advice spotlight

Automate your college contributions

Like retirement planning, consider setting up weekly or monthly contributions to your college savings account to save incrementally and effortlessly.

Questions to discuss with us

  • Can you help me determine a tax-advantaged savings strategy and savings vehicles for my education goal, including options to capture additional savings opportunities over time?
  • How should I approach my education savings goal along with my other financial priorities and goals, including retirement?
  • Can you help me determine a strategy to help position my assets for the financial aid process?

Let’s talk through your options

We can help weigh the pros and cons of various college savings options and make a recommendation aligned with your other goals and financial situation.