Exploring your options for college savings

July 06, 2023

The college years are some of the best years of our lives, full of memories and plenty of learning opportunities. Kids become adults through the process, with aspirations of one day landing that dream career. These precious years are exhilarating, hopeful… and expensive.

Planning for college costs isn’t as much fun — especially for parents and guardians. It takes a giant chunk of funding to get kids through their degree programs. College can range anywhere from $10,000 to $39,000 each year for in-state tuition, depending on your school choice.

Obviously, saving is key. But what’s the best way to save for those post-secondary education years? There are numerous savings options, and we’re happy to break them down for you. The following are different account types available to diversify your college savings funds and help put higher education on the horizon.

529 plan

Probably the most popular type of college savings account, 529 plans offer flexibility with no minimum contribution or residency requirements, and funds can be used at 2-year and 4-year colleges and universities as well as trade, technical and vocational schools.  The plans also offer state and federal tax benefits – any earnings are tax-deferred while in the account and the potential for tax-free withdrawals when used for qualified education expenses. The maximum contribution amount is much higher than other college savings vehicles, some as high as $500,000 for each beneficiary over the life of the account.

Parent-owned accounts are treated as parental assets for federal financial aid applications. If you have questions about a 529 plan, we’ve got a team devoted to making these accounts easy and accessible.

Coverdell ESA

A Coverdell is very similar to a 529 plan in that it allows you to take advantage of tax-free withdrawals for K-12 expenses or higher education up to $10,000 per year. With a broad range of investment options, including the ability to self-direct investments, the Coverdell ESA isn’t available to families with higher assets and income, and it has lower maximum contribution limits than other college funds.

Mutual funds

A popular retirement savings choice, mutual funds allow you to invest in several securities at once, and there’s no limit to how much you can invest. With more than 10,000 mutual fund options available, chances are you’ll find the one — or several — that suits your savings needs best. The funds can be spent as you choose, but they are subject capital gain tax when sold.

The one caveat when choosing a mutual fund account for saving is that mutual fund assets owned by parents can impact federal financial aid eligibility, and the money held in mutual funds is subject to the ebbs and flows of the stock market more than other investment options. If you’d like to speak to one of our mutual fund advisors about college savings, they’d love to explain your options.


Uniform Gifts to Minors Accounts (UGMA) and Uniform Transfers to Minors Accounts (UTMA) are great savings accounts for college. It’s a brokerage account opened by an adult on behalf of a minor child. They’re diversely invested and held by a parent until the child turns 18, 21, or 25 years of age. Just like mutual funds, there’s no limit on how much you can invest, and the funds can be spent on anything.

The custodial accounts aren’t counted as parental assets toward federal financial aid, but are counted toward student assets, which means they can reduce a student’s aid somewhat based on how much is in the account. The other concern some parents have about UGMA and UTMA is that the child owns the account, and when they reach legal age, they can spend the money as they choose — which may go against what the parent had intended.

Savings bonds

As far as safety goes, nothing beats a savings bond. Issued and backed by the U.S. Treasury, savings bonds are low risk, but also low reward when it comes to growth. They’re federally tax-deferred and state tax-free. There is a $10,000 limit per year, per owner, per type of bond. If the bond proceeds aren’t spent on college tuition and fees, they are subject to tax.

Roth IRA

Typically used as a retirement account, Roth IRAs offer a broad range of investment options. Taking funds out of a Roth IRA for college is considered untaxed income for the beneficiary (your student). There are limits on how much you can invest per year, and income limits exist for eligibility. One thing to note is that withdrawals from a Roth IRA to pay for college are considered income for student aid calculations.

As you navigate your options, remember that your friends at UBT are always here to help, whether you partner with one of our wealth advisors, open a 529 account, or start saving using our Online Investing platform. And no matter your choice, it’s always wise to consult with your tax professional to ensure you’re staying on the right side of the IRS. Happy saving!

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