College Savings Plans: 7 Options to Consider

Tom Gilmour is a senior director of Planning Experience Integration for Northwestern Mutual.

When your kids are still in diapers, going through the finer points of different savings plans for college probably isn’t high on your list of priorities. After all, the cost of raising kids is staggering all on its own. It’s natural to want to find your footing as a parent before you begin thinking about tuition and textbooks.

But it’s also important to remember that your kids will be grown up before you know it. And since the cost of college continues to skyrocket, it’s never too early to start saving for college—even if you aren’t sure your young one will eventually attend.

You may be wondering about the best way to start saving as there are a lot of options—and some even come with tax benefits. Here are seven types of college savings accounts to consider.

The best types of college savings plans

In choosing a college savings plan, you should consider several factors, including contribution limits, tax benefits, and how much flexibility and control you want over the account. We review a number of these factors below.

While some plans have contribution limits, it’s important to point out that the yearly gift tax exemption rules apply to gifts to any of these plans. That means if you’re contributing more than $19,000 as an individual ($38,000 if you’re married), you will either eat into your lifetime gift-tax exemption (currently $15 million if single or $30 million if married as of 2026) or you will owe tax on any contribution that’s over the yearly exemption.

1. 529 plans

A 529 plan is a dedicated college savings plan that allows your money to grow in a tax-advantaged way. You won’t have to pay federal income taxes when you withdraw the money from a 529 if you’re using it for qualified expenses, which include tuition, fees, class materials and more at any accredited college. (If you use the money for a nonqualified expense, you will owe taxes as well as a 10-percent tax penalty on the growth.) You can also use up to $10,000 per year to pay tuition for grades kindergarten through 12.

A provision of the Securing a Strong Retirement Act of 2022 or SECURE 2.0 ACT, which became law in 2022, made 529 plans a bit more flexible. As of 2024, a lifetime limit of $35,000 can be rolled over from a 529 plan into a Roth IRA plan designated for the named beneficiary. This is one more reason why it might be better to start your 529 fund earlier rather than later: It only applies to plans that have existed for at least 15 years before the rollover, and only 529 contributions made at least five years before the rollover are eligible.

Almost anyone can open and/or make contributions to a 529, which makes it a great way for you, or even other family members, to save for your child’s future. Almost every state has its own plan, but you’re not limited to this—you can choose to save in whichever state plan you think is best. However, several states allow you to write off contributions to their 529 plan if you are a resident, which can translate into lower state income taxes.

529 plans also offer an additional tax advantage by allowing “super funding.” This means you can contribute as much as $95,000 as an individual ($190,000 if you're married) at one time and treat the contribution as if it were made over the next five-year period without eating into your lifetime gift-tax exemption.

2. Coverdell Education Savings Accounts (ESAs)

Formerly known as an “Education IRA,” Coverdell accounts offer tax-deferred savings and tax-free withdrawals when the funds are used for educational costs. If they’re not used for education, the money will go to your child rather than the plan holder, giving you less control over how it’s ultimately used.

You can only contribute up to $2,000 per beneficiary per year, and even that is subject to income limits. For 2026, contributions are gradually reduced once your modified adjusted gross income (MAGI) hits $190,000 for married couples filing jointly or $95,000 for single filers; they phase out completely for those with a MAGI of $220,000 or more ($110,000 for single filers).

Unlike contributions to 529 accounts, which are sometimes tax deductible at the state level, contributions to Coverdell ESAs are not.

3. UTMA/UGMA custodial accounts

Uniform Transfer to Minor (UTMA) and Uniform Gift to Minor (UGMA) “custodial accounts” can be used to fund many expenses beyond college. This provides additional flexibility that can be attractive if you want to save for your child but don’t want to lock into a college savings plan.

One key difference from other college savings choices is that the UGMA/UTMA comes with no strings attached: The account automatically transfers to the child at the age of 18 or 21 (depending on the state). That means he or she can then spend the funds on anything they choose, regardless of your intentions when you set up the account. Unlike 529s and Coverdell accounts owned by the parents, UGMAs and UTMAs will appear as assets of the child on the Free Application for Federal Student Aid (FAFSA), which will affect their eligibility for aid more significantly than parent-owned assets.

Unfortunately, UGMA and UTMA accounts are not tax advantaged. That means contributions are not tax deductible, and earnings are subject to tax each year—although at your child’s tax rate, which will usually be lower than your own.

4. Roth IRAs

Traditionally used as a retirement savings vehicle, a Roth IRA offers the benefit of savings that grow tax free. Typically, you can withdraw direct contributions that you’ve made to the Roth IRA whenever you want, but you can’t withdraw earnings without paying a 10 percent penalty until age 59 ½. Because there’s an exception for qualified education costs if the plan has been open at least five years, it’s possible to use a Roth IRA as an additional college saving plan without incurring the 10 percent penalty, though any taxable earnings may still be subject to income tax.

Another option is to open a custodial Roth IRA for your child. The only requirement is that your child needs to earn an income. That means this can be a good option once your child is older (at least old enough to legally work). Since it’s not limited to college expenses, any money in your child’s custodial Roth IRA that they don’t use for college can be saved for retirement, giving them a helpful headstart. (Just keep in mind that annual contributions are currently capped at $7,500 if you’re under 50.)

5. Permanent life insurance

A life insurance policy isn’t a college savings plan, but it can act as a safety net for your child if you pass away before they’re an adult. Depending on the size of your death benefit, your policy could not only support your child into adulthood but also help them pay for college expenses without taking on burdensome student loans.

Likewise, a life insurance policy purchased for your child as a baby will accumulate cash value that you could eventually use to help pay for college costs. Another benefit is that child life insurance isn’t counted as an asset when it comes to filing for financial aid.¹

6. Educational trusts

An educational trust is a type of trust that allows you to set funds aside and offer guidance on how they will be used, such as for a four-year college education or for any educational expenses, including trade school, community college or even travel. The money in the trust will be tax-free on withdrawal, but you will pay taxes on the money earned by the investments; upon withdrawal it will be taxed at the beneficiary’s tax rate, which might be lower than yours. Additionally, any trusts set up to benefit the student will be reported on the FAFSA as a student-owned asset, which affects eligibility more significantly than parent-owned assets.

7. Trump Accounts

The One Big Beautiful Bill Act (OBBBA) established a new type of tax-advantaged account for children. These accounts, called Trump Accounts or 530A accounts, are opened for children born in the United States, who are U.S. citizens and have a Social Security number. Once the account is opened, parents, their employers, the federal government and certain agencies and nonprofits can then contribute money into the accounts—currently, up to an annual limit of $5,000—where it can be invested and grow over time.

The accounts are technically designed to give children a head start on saving for their retirement, and withdrawals before they are 59 ½ years old will mean taxes and penalties just like early withdrawals from an IRA. But there are several exceptions, including when funds are used to pay for higher education.

What is the best savings plan for college?

With so many options, it's important to find the college savings account that meets your family’s needs. Depending on your situation, this may include saving through one type of account or multiple for added flexibility.

Your financial advisor can help you create a college savings plan that fits with your financial goals by asking questions such as: Would you rather cover the entire cost of college for your children and have slightly less to spend in retirement? Or are you OK with your kids having to take some loans for college so that you have more to spend in retirement? Working with your financial advisor can help you prioritize what's most important for you and your family.

¹Utilizing the cash value through policy loans, surrenders, or cash withdrawals will reduce the death benefit; and may necessitate greater outlay than anticipated and/or result in an unexpected taxable event.

All investments carry some level of risk including the potential loss of principal invested. No investment strategy can guarantee a profit or protect against loss.