College Savings

Learn about the different types of college savings investment accounts to find the one that fits your goals.

Plans at a Glance

Once you've decided to invest for college, the next step is to understand your choices. Review three popular plan types below.

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529 Plans

529 plans are state-sponsored programs that allow you to contribute toward higher education goals for you, your children, grandchildren or other loved ones.

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CESAs

Coverdell accounts (also known as Coverdell ESAs or CESAs) are federally sponsored custodial accounts that allow an adult to open an account for students under the age of 18.

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UTMAs

UTMAs allow minors to invest for any purpose—including education—and take advantage of children's taxation rates.

How can the plans be used?

529 Plans

Qualified educational expenses at eligible 2- and 4-year colleges; graduate, vocational and technical schools; and tuition for K-12 education (check your plan for availability).

CESAs

Qualified educational expenses at elementary, secondary schools and higher education.

UTMAs

Any purpose that benefits the child.

What happens if the money isn't used?

529 Plans

The plan can be transferred to a different beneficiary or withdrawn as a non-qualifying expense.

CESAs

The money can be withdrawn as a non-qualifying expense.

UTMAs

The money is not limited to educational expenses, so there are no restrictions on how the money can be used.

What are the tax benefits?

529 Plans

Contributions may qualify for state tax deduction. Earnings also grow tax deferred at the federal and state levels.

The availability of tax or other state benefits (such as financial aid, scholarship funds and protection from creditors) may be conditioned on meeting certain requirements, such as residency, purpose for or timing of distributions, or other factors. The earnings portion of nonqualified withdrawals is subject to federal and state income taxes and a 10% federal penalty.

CESAs

Earnings grow tax deferred at the federal level.

UTMAs

Earnings, distributions and transactions are reported to the IRS under the minor's Social Security number and are taxed at the minor's tax rate.

How will the money be taxed when taken out of the account?

529 Plans

The earnings portion of non-qualified withdrawals is subject to federal and state income taxes and a 10% federal penalty.

CESAs

Withdrawals are tax free if used for qualified expenses. The money in the CESA must be used by the time a beneficiary reaches his or her 30th birthday.

UTMAs

Withdrawals are reported to the IRS under the minor's Social Security number and are taxed at the minor's tax rate.

How much money is needed to open an account?

529 Plans

Many plans have no minimum amount to open an account.

CESAs

Contributions are capped at $2,000 a year per IRS rules. Although this does not meet our minimum, you may open your first account with $2,000 in a fund that typically has a $2,500 minimum.

UTMAs

You must meet the fund minimum, typically $2,500.

How long can contributions be made to the account?

529 Plans

There are no age restrictions. Contributions may be made at any age of the beneficiary.

CESAs

Contributions can only be made before the beneficiary reaches age 18.

UTMAs

Investments can only be made while the beneficiary is a minor (typically age 18).

Are there any income limitations?

529 Plans

There are no income restrictions.

CESAs

Contributions may be limited or restricted depending on your income level.

UTMAs

There are no income restrictions.

IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.

This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.