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Investing for College

Discover effective planning and investing strategies for higher education

Investing for college can be daunting. We'll help guide you through all the investment choices designed to help take you where you want to go. Just think of us as your investing for college tutor.

Understanding the basics

Setting aside funds for higher education can create a brighter future for you or a loved one, but deciding how to go about investing can leave you guessing. If you are setting aside funds specifically for education - then with any account growth vehicles like 529 college savings plans and Coverdell Education Savings accounts offer tax-deferred or even tax-free growth so you can maximize your potential savings. Whichever approach you select, it's important to remember that starting early and contributing even just a little bit can help you reach your goals faster.

Investment vehicles designed for education

There are a number of choices available for those seeking tax-efficient accounts specific education. These include 529 college savings plans, Coverdell Education Savings accounts, and UGMA/UTMA Custodial accounts.

529 plans

Sponsored by individual states, these college savings plans offer a level of flexibility and potential tax advantages that can make them a great choice for the right investor. Benefits of a 529 plan vary from state to state.

Coverdell education savings accounts

These accounts offer federal tax-free earnings and withdrawals on qualified expenses such as tuition, books, computers, and room & board. While 529 Plans are used exclusively for college. Coverdell Education Savings Accounts (ESAs) can be used for elementary and secondary schooling in addition to college. Additionally, there are no minimum contributions, and account owners can contribute up to $2,000 per child per year. See if Coverdell ESAs are right for you by exploring more account details.

UGMA/UTMA custodial accounts

Custodial accounts provide a way to build assets for your children or loved ones future, and let you manage a minor's assets for their benefit. As you build a portfolio, with or without assets from the minor, you will be the guardian of the account, managing it until the minor reaches the age of majority. From the start, the account will be held under the minor's name and Social Security Number. Once they are old enough they will assume control of all assets.

Learn more about the tax benefits and details of custodial accounts.

529 prepaid tuition plans

Some states offer an alternate 529 plan that allows you to prepay tomorrow's college tuition at today's prices to attend an in-state college. Some plans cover tuition, fees, and room and board, while others only cover tuition and fees.

Compare education investment vehicles

529 Plans

Coverdell ESAs

UGMA/UTMA Custodial Accounts

Is there a contribution limit?

529 Plans

Yes (Varies by state)

Coverdell ESAs

Yes ($2,000 per year)

UGMA/UTMA Custodial Accounts

No

What's included in "qualifed expenses"?

529 Plans

Tuition, fees, books, school equipment, school supplies, room & board for college only

Coverdell ESAs

Tuition, fees, books, school supplies, room & board for all levels of education

UGMA/UTMA Custodial Accounts

Any costs that benefit the minor for education-related or other costs

Are qualified expenses taxed?

529 Plans

No (Federal tax-free, State taxes may apply)

Coverdell ESAs

No (Federal tax-free, State taxes may apply)

UGMA/UTMA Custodial Accounts

Yes (Investment income is subject to federal income tax, possibly at child rate)

Can you change the beneficiary?

529 Plans

Yes

Coverdell ESAs

Yes

UGMA/UTMA Custodial Accounts

No

Are there any income limit restrictions?

529 Plans

No

Coverdell ESAs

Yes (Ineligible if your Adjusted Gross Income is $95,000-$110,000 for single filer; and $190,000-$220,000 for joint filers

UGMA/UTMA Custodial Accounts

No

How is the account treated for estate tax purposes?

529 Plans

The value of the account is removed from the account owners taxable estate

Coverdell ESAs

Contributions are treated as completed gifts from the contributor to the beneficiary

UGMA/UTMA Custodial Accounts

The value of the account is included in the custodian's taxable estate

Get in touch Call or visit a branch

Call us: 800-454-9272

175+ Branches Nationwide

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Content intended for educational/informational purposes only. Not investment advice, or a recommendation of any security, strategy, or account type.

Market volatility, volume and system availability may delay account access and trade executions.

TD Ameritrade does not provide tax advice. We suggest you consult with a tax-planning professional with regard to your personal circumstances.

An investor should consider a 529 plan's investment objectives, risks, charges and expenses before investing. A plan's Program Disclosure Statement, which contains more information, should be read carefully before investing.

Investors should consider before investing whether their or their beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program and should consult their tax advisor, attorney and/or other advisor regarding their specific legal, investment or tax situation. 

This material is provided for general and educational purposes only, and is not intended to provide legal, tax or investment advice, or for use to avoid penalties that may be imposed under U.S. federal tax laws.  This material is not an offer to sell or a solicitation of an offer to buy any securities.  Any offer to sell units within the Plan may only be made by the Program Disclosure Statement and Participation Agreement relating to the Plan.

TD Ameritrade does not provide tax advice.  Every individual’s tax situation is different, and it is important to consult a qualified tax advisor regarding the application of a 529 plan’s benefits to your own individual situation.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

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