College Savings

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How will I pay for college?

Searching for the right path for college saving but getting lost?

Thanks to government-improved savings plans, you have several choices, each with its own advantages and drawbacks.

Which option—or options—you choose depends on several factors, such as whether or not it gives tax breaks, limits the amount you're allowed to save, has costs and fees, offers investment options, requires a minimum amount to get started, or lets the parent or guardian have control of the account.

Here are two of the top ways to save and some of their pros and cons. For more details, see our college savings options comparison chart.

529 college savings plan

These plans, typically state-sponsored, offer tax advantages, high contribution limits, and investment flexibility. Your savings can be used for qualified higher-education expenses at almost any college or university.

Pros
Tax-advantaged growth Contributions grow federally tax-free and you may even get state income tax breaks.*
Tax-free withdrawals Withdrawals are free from federal (and sometimes state) income tax if used to pay for qualified higher education expenses.*
High contribution limit High limits on the amount you're able to save—sometimes more than $300,000.
Low financial aid impact Minimal impact on financial aid.
Investment options A range of available investment options, from set-it-and-forget-it to do-it-yourself portfolios.
Account control  Control stays in the hands of the account owner.
Minimum investment  A required minimum amount is needed to invest. This amount depends on the plan you choose, but most plans have low initial investments.
Con
Costs & fees Potential expenses could impact your savings.

* Earnings on nonqualified withdrawals may be subject to federal income tax and a 10% federal penalty tax, as well as state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements.

Investment returns are not guaranteed, and you could lose money by investing in the plan.

UGMA/UTMA account

The Uniform Gifts to Minors Act and Uniform Transfers to Minors Act provide simple ways to give gifts to children, who then own the account at the age of majority (18–21, depending on the state). You may use the account to benefit the child in any way, excluding parental obligations like food and shelter. If you have an existing UGMA/UTMA account, you can sell the assets and transfer the proceeds into a 529 plan or ESA of your choice.

Pros
High contribution limit No limit on how much you can contribute.
Investment options A broad lineup of Vanguard mutual funds. If you're interested in individual securities, exchange-traded funds, or other companies' mutual funds, you can open an UGMA/UTMA through Vanguard Brokerage Services®.
Flexibility  No penalty if withdrawals aren't used for college.
Unlimited participation No limit on who can contribute.
Cons
Irrevocability Contributions are irrevocable.
Account control  Once he or she reaches the age of majority, the beneficiary controls the money and can use it for any reason.
Sole beneficiary   You can't change beneficiaries.
High financial aid impact Significant impact on federal financial aid. The account is treated as the child's asset and counted more heavily in calculations.
Taxable earnings Earnings are subject to federal income or capital gains tax.

All investments are subject to risk.

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NOTE:

For more information about any 529 college savings plan, contact the plan provider to obtain a Program Description, which includes investment objectives, risk, charges, expenses, and other information; read and consider it carefully before investing. If you are not a taxpayer of the state offering the plan, consider before investing whether your or the designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program. Vanguard Marketing Corporation serves as distributor and underwriter for some 529 plans.