Education Savings Accounts

How to get the best education savings accounts

Paying for college can be a daunting task, and choosing an education savings account can be tricky. Each family needs to evaluate their circumstances and decide which savings account will be best for them. Here are three options: Uniform Gift to Minors Accounts, 529 Plans and Coverdell Education Savings Account (ESA.)

With Uniform Gift to Minors Accounts, parents put funds into an account that is in the child's name. Parents are responsible for investing, but the investments belong to the child once he or she turns 21. Investments made into these accounts receive taxing in the child's tax bracket.


One of the advantages of this type of account is that unlike some other savings accounts, parents can invest as much money as they like into it. Another advantage is that anyone, such as family friends, can set up this type of account. With other college accounts, only parents or guardians can make an investment.

There are also some disadvantages with this type of account. Since the account is in the child's name, his or her chance of getting financial aid from other sources might be reduced. Some financial consultants recommend that students spend money from this type of account on other costs – like a computer – before the student applies to college. That way, the money in the account will not be used against them when the college calculates financial need. Another disadvantage: since the account is in the child's name, there is no way that parents can ensure that their child will use the money for college. If they want to blow that money on a new Corvette, there is nothing their parents can do about it.

Another type of savings account is the 529 account. One of the advantages of the 529 account is that, unlike some other accounts, there is no age limit for the beneficiary of the account. This plan could work well for adults who are attending college later in life. In addition, the amount that can be put in this account each year is a lot higher than some other accounts. Depending on the state, the contribution can be from $100,000 to $365,000. You also don't have to consider your income if you want to invest in this type of account. While some accounts have certain income requirements, this account does not have such stipulations.

One of the downfalls of this type of account is that it can only be used for college. So, if you want your savings to be put towards private elementary and secondary funding, this isn't the option for you. This type of account also provides less leeway in regards to what the money can be spent on. The funds must be used on tuition, room and board, and books.

If you want more flexibility in how your invested money is spent, ESAs might be a better option. The funds can be used to pay for elementary school, secondary school or college. In addition, you are able to spend the money on a wider variety of items, in comparison to the 529 accounts. For example, computers and Internet access qualify.