Ask a Financial Planner: College Savings Plans

Question: “Are there better ways to save for college than a 529 plan?”

Answer: There are many ways to save for college and each can be appropriate given different circumstances. Savings bonds, Education Savings Accounts and 529 plans are the most common vehicles used for higher education, and each provides its own set of advantages and limitations. The best way for you to save for college is going to depend on your personal situation.

Savings bonds can be attractive because they are interest-based and backed by the government. There are several requirements and limitations that must be followed to qualify for the tax advantages. Keep in mind Series EE bonds available for purchase now have an extremely low interest rate that is fixed for the life of the bond.

Education Savings Accounts are useful when saving for kindergarten through high school expenses, as well as college. However, these types of accounts have relatively low annual contribution limits which must be considered when deciding where to save for college.

Many people find 529 plans offer significant advantages over the alternatives, so they have become very popular. There are no household income limitations to participate in funding a 529 plan, so this program is particularly valuable to those in higher tax brackets. In addition, many state-sponsored plans, Indiana included, offer tax credits or deductions for contributions. Finally, many plans have high per-beneficiary contribution limits. 

-       Written by Juli Erhart-Graves, CERTIFIED FINANCIAL PLANNER™ practitioner.