See How 529 College Savings Plans Stack Up
Figuring out which option is the best fit for your family isn’t always straightforward. Should you save in a 529 college savings plan account? A traditional savings account? A taxable brokerage account? A Roth IRA? The optimal choice may depend on your circumstances, budget, and goals; however, saving in a 529 plan offers distinct advantages. Some benefits are:
- A 529 plan lets you control the account and change the beneficiary at any time, subject to IRS regulations.
- There are no income restrictions, and any earnings are tax-deferred.
- Distributions are exempt from federal income tax if used for qualified education expenses.
Use the chart below to compare the characteristics of each savings vehicle and get a better understanding of what they offer and how they may or may not work for you.
Comparing 529s With Other Saving and Investment Alternatives
Who controls the account? |
|
|---|---|
529 COLLEGE SAVINGS PLAN1 |
Parent |
BANK SAVINGS ACCOUNT |
Parent |
TAXABLE BROKERAGE ACCOUNT |
Parent |
ROTH IRA |
Parent |
529 COLLEGE SAVINGS PLAN1 |
BANK SAVINGS ACCOUNT |
TAXABLE BROKERAGE ACCOUNT |
ROTH IRA |
|
|---|---|---|---|---|
Who controls the account? |
Account holder |
Account holder |
Account holder |
Account holder |
How is this money taxed? |
Money grows tax-deferred and is federally tax-free when used for qualified education expenses. |
Interest is subject to state and federal taxes at the account holder's rate. |
Net interest, dividends, and capital gains are subject to state and federal taxes at the parent’s rate. |
Money grows tax-deferred. Contributions can be taken out tax-free. Earnings are excluded from income after age 59½ and five years in Roth. The 10% penalty on early withdrawals is waived if used for qualifying higher education expenses. |
What are my investment choices? |
Menu of investment options offered in the plan. |
Menu of bank products, such as savings, checking, and CDs. |
Broad range of investment options, such as stocks, bonds, and mutual funds. |
Broad range of investment options, such as stocks, bonds, and mutual funds. |
Are there contribution limits? |
Total contributions vary by plan, often $400,000 or more. For the T. Rowe Price College Savings Plan, you can invest any amount up to the account balance maximum of $550,000 per beneficiary. |
No limit |
No limit |
There are annual limits: $6,000 for tax year $6,500 for tax year 2023 ($7,500 if age 50 and older). |
What is the impact to financial aid? |
Funds in the account are considered an asset of the parent. Up to 5.64% may be counted in financial aid calculations. |
Funds in the account are considered an asset of the parent. Up to 5.64% may be counted in financial aid calculations. |
Funds in the account are considered an asset of the parent. Up to 5.64% may be counted in financial aid calculations. |
The retirement account balance is not included in the financial aid formula. However, distributions used to pay for college are considered income of the student, with up to 20% counted in financial aid calculations. |
Does my income affect my ability to contribute? |
No |
No |
No |
Yes, income may affect the annual contribution amount. The contribution limit phases out for incomes between $218,000 and $228,000 (joint filers) or $138,000 and $153,000 (single filers). |
Where can I use my savings? |
Can be used at almost all colleges, universities, vocational schools, or apprenticeship programs in the U.S. (some international schools qualify as well); for qualified K–12 tuition expenses; and for education loan repayment.2 |
No restrictions |
No restrictions |
No restrictions once the account owner reaches retirement age. Prior to retirement, can be used for higher education expenses without the 10% early withdrawal penalty, but income taxes may be assessed. |
Can I change the beneficiary? |
Yes, to another member of the beneficiary’s family. |
Not applicable |
Not applicable |
Not applicable |
How is this money taxed? |
|
|---|---|
529 COLLEGE SAVINGS PLAN1 |
Money grows tax-deferred and is federally tax-free when used for qualified education expenses. |
BANK SAVINGS ACCOUNT |
Interest is subject to state and federal taxes at the parent’s rate. |
TAXABLE BROKERAGE ACCOUNT |
Net interest, dividends, and capital gains are subject to state and federal taxes at the parent’s rate. |
ROTH IRA |
Money grows tax-deferred. Contributions can be taken out tax-free. Earnings are excluded from income after age 59½ and five years in Roth. The 10% penalty on early withdrawals is waived if used for qualifying higher education expenses. |
What are my investment choices? |
|
|---|---|
529 COLLEGE SAVINGS PLAN1 |
Menu of investment options offered in the plan. |
BANK SAVINGS ACCOUNT |
Menu of bank products, such as savings, checking, and CDs. |
TAXABLE BROKERAGE ACCOUNT |
Broad range of investment options, such as stocks, bonds, and mutual funds. |
ROTH IRA |
Broad range of investment options, such as stocks, bonds, and mutual funds. |
Are there contribution limits? |
|
|---|---|
529 COLLEGE SAVINGS PLAN1 |
Total contributions vary by plan, often $400,000 or more. For the T. Rowe Price College Savings Plan, you can invest any amount up to the account balance maximum of $475,000 per beneficiary. |
BANK SAVINGS ACCOUNT |
No limit |
TAXABLE BROKERAGE ACCOUNT |
No limit |
ROTH IRA |
There are annual limits: $6,000 for tax year 2020 ($7,000 if age 50 and older). |
What is the impact to financial aid? |
|
|---|---|
529 COLLEGE SAVINGS PLAN1 |
Funds in the account are considered an asset of the parent. Up to 5.64% may be counted in financial aid calculations. |
BANK SAVINGS ACCOUNT |
Funds in the account are considered an asset of the parent. Up to 5.64% may be counted in financial aid calculations. |
TAXABLE BROKERAGE ACCOUNT |
Funds in the account are considered an asset of the parent. Up to 5.64% may be counted in financial aid calculations. |
ROTH IRA |
The retirement account balance is not included in the financial aid formula. However, distributions used to pay for college are considered income of the student, with up to 20% counted in financial aid calculations. |
Does my income affect my ability to contribute? |
|
|---|---|
529 COLLEGE SAVINGS PLAN1 |
No |
BANK SAVINGS ACCOUNT |
No |
TAXABLE BROKERAGE ACCOUNT |
No |
ROTH IRA |
Yes, income may affect the annual contribution amount. The contribution limit phases out for incomes between $196,000 and $206,000 (joint filers) or $124,000 and $139,000 (single filers). |
Where can I use my savings? |
|
|---|---|
529 COLLEGE SAVINGS PLAN1 |
Can be used at almost all colleges, universities, vocational schools, or apprenticeship programs in the U.S. (some international schools qualify as well); for qualified K–12 tuition expenses; and for education loan repayment.2 |
BANK SAVINGS ACCOUNT |
No restrictions |
TAXABLE BROKERAGE ACCOUNT |
No restrictions |
ROTH IRA |
No restrictions once the account owner reaches retirement age. Prior to retirement, can be used for higher education expenses without the 10% early withdrawal penalty, but income taxes may be assessed. |
Can I change the beneficiary? |
|
|---|---|
529 COLLEGE SAVINGS PLAN1 |
Yes, to another member of the beneficiary’s family. |
BANK SAVINGS ACCOUNT |
Not applicable |
TAXABLE BROKERAGE ACCOUNT |
Not applicable |
ROTH IRA |
Not applicable |
1529 plans can vary from state to state, and there may be different costs, investment options, and tax incentives, so it’s important that you compare the features of your state’s 529 plan with other plans.
2Distribution limits apply for education loan repayment and K–12 tuition expenses. While distributions from 529 college savings plans for elementary or secondary education tuition expenses are federally tax-free, state tax treatment will vary and could include state income taxes assessed, the recapture of previously deducted amounts, and/or state-level penalties. You should consult with a tax or legal advisor for more information.
Frequently Asked Questions
Can I move assets from another college savings account or an UGMA/UTMA account into a T. Rowe Price College Savings Plan account?
To open or contribute to a T. Rowe Price College Savings Plan account using your savings from another 529 plan...
How much can I expect my investments to earn?
Your investment earnings depend on the market's overall performance and the specific investment portfolio that you choose...
