Saving for college: What are the options?

Young woman benefiting from her family saving for college

Education is one of the largest expenses you’ll likely face in your lifetime—and one of the most worthwhile. Look through our cheat sheet of savings options to decide which one is right for you.

A college education is a way to open up more options for kids (and adults!), but paying for it can feel overwhelming. If you want to help someone in your life attend college, you’ve got several options for saving, each with its own benefits.

College saving options

529 plan

A 529 plan is an investment account operated by a state or educational institution and designed to help people save for college.

Many states offer tax benefits to state residents for money deposited into a 529 plan. Also, all withdrawals—including potential earnings—are free of federal taxes, as long as they’re used for qualified higher education expenses.

Coverdell Education Savings Accounts

Coverdell Education Savings Accounts (ESAs) are tax-advantaged accounts that allow you to set aside up to $2,000 for qualified college costs.

There are no tax advantages for contributions; however, beneficiaries can withdraw money—including potential earnings—free of federal taxes, as long as the funds are used for qualified higher education expenses.

Uniform Trust/Gift to Minors Act Accounts

Uniform Trust/Gift to Minors Act Accounts (UTMAs/UGMAs) are custodial accounts managed for the benefit of a minor. Keep in mind that you can’t control how this money is used once the child reaches the age when he or she gains ownership of the account.

Education Bond Programs

Education Bond Programs (U.S. Savings Bonds) include Series EE (issued after 1989) and Series I Savings Bonds, and may be used to fund qualified education expenses.

These bonds offer tax advantages for qualified education expenses for yourself or a dependent; however, those advantages phase out over certain income limits.

Roth IRAs

Roth IRAs are tax-advantaged retirement vehicles that may also be used to fund qualified higher education expenses.

Early withdrawal penalties are waived when Roth IRAs are used to pay qualified post-secondary education costs. (Taxes may still be due on the withdrawals of any potential earnings, however.)

An added benefit of a Roth IRA is that it can be used for retirement if the funds aren’t needed for college costs.


Need help deciding which college savings vehicle is right for you? Speaking to an advisor at Principal® can help you answer your questions and get started with saving. Because the sooner you start saving, the more growth potential your money may have—and the less you’ll feel its impact on your paycheck.

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