Just like your choice for retirement, you have to answer two questions when deciding where to invest for college:
- What type of vehicle do I use to invest for college?
- What do I actually invest in within that vehicle?
The good news is you don’t have nearly as many choices when deciding where to invest for college.
The bad news is that the accounts differ in many ways, including tax benefits, contribution limits, which expenses are eligible, ability to change beneficiaries, income limits, financial aid treatment, investment options, and more.
There are 3 main types of accounts parents (and grandparents) choose for children:
- 529 Plan
- Coverdell ESA (Education Savings Account)
- UGMA/UTMA (Uniform Gift to Minors Act / Uniform Transfer to Minors Act)
I’ve put together a comparison chart listing the most relevant features of these three main options you have for college savings: