Guide to college savings plans and education savings accounts

Key Points

  • Education savings plans can offer a variety of features and benefits including certain tax and contribution advantages.
  • Ameriprise Financial offers a variety of education savings account plan options.

An Ameriprise financial advisor can help you determine how much you'll need to save based on your priorities and situation. They can walk you through the common college savings plan options available at Ameriprise and also discuss alternative investing options that may work in your situation.

529 college saving plans

Investing in a 529 plan can help you save money for college tuition and expenses with additional tax benefits that vary by state and plan.

Withdrawals can be used for the beneficiary’s eligible K-12 and postsecondary qualifying education  expenses. 

  • Earnings are federal income tax-free as long as the withdrawals are used for qualifying postsecondary education expenses, including tuition, fees, books, certain equipment and the reasonable cost of room and board (for students enrolled at least half-time)
  • States sponsoring 529 college savings plans may offer their own tax benefits on 529 plan contributions, including income tax deductions, tax credits and other benefits such as matching grants.
  • Typically, you'll only be eligible for state tax benefits if you invest in a plan sponsored by your state of residence or the state in which you pay taxes. However, there are certain states that offer tax benefits for contributions to 529 Plans from any state.
  • The earnings withdrawn from a 529 savings plan that are not used for qualifying college expenses are generally subject to income tax and an additional 10% penalty. You should consult a tax specialist regarding your specific situation.
  • Based on the Tax Cuts and Job Acts of Dec. 2017, qualified distributions from 529 plans can now be made for public, private or religious elementary and secondary tuition expenses at a maximum of $10,000 per beneficiary. 
  • Based on the Setting Every Community Up for Retirement Enhancement (SECURE) Act of December 2019, qualified distributions from 529 plans can now be made for student loan repayment (up to $10,000 aggregate lifetime) for the account’s beneficiary and each of their siblings.

Learn more about the ins and outs of 529 plan contributions and withdrawals.

Coverdell education savings accounts (CESA)

Save for your child’s elementary, secondary and college education expenses by contributing up to $2,000 per year per beneficiary until the day before the child's 18th birthday (unless the child is a special needs beneficiary as defined by the federal government).

Withdrawals can be used toward private school tuition, tutoring and computers, tax-free. The child must use the funds before age 30 unless they are a special needs beneficiary.

  • Contributions are not tax deductible, but earnings are federal income tax-free when used for qualifying education expenses.
  • Eligibility phases out for joint filers with incomes between $190,000 and $220,000, and for single filers with incomes between $95,000 and $110,000.

Get more information on Coverdell vs. 529 plans and other tax-advantaged ways to save for college here.

 

Take the next step towards education savings plans

While some people take out loans to pay for education expenses, the interest on qualified student loans may be deductible, subject to income limitations. Talk with an Ameriprise financial advisor before tapping your home equity, spending your retirement assets or using your credit cards to pay tuition. To find out more about the right education savings plan for you, contact your Ameriprise financial advisor or locate an advisor near you.

This information is being provided only as a general source of information and is not intended to be the primary basis for investment decisions. It should not be construed as advice designed to meet the particular needs of an individual investor. Please seek the advice of a financial advisor regarding your particular financial concerns.

Clients should carefully consider the investment objectives, risks, charges and expenses associated with a 529 plan before investing. More information regarding a particular 529 plan is available in the issuer’s official statement, which may be obtained from an Ameriprise financial advisor. Investors should read the 529 plan’s official statement carefully before investing. 
Clients contributing to a 529 plan offered by a state in which they are not a resident should consider before investing whether their, or their designated beneficiary(s) home state offers any state tax or other benefits only available for investments in such state’s qualified tuition program. 
Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax advisor or attorney regarding their specific situation. 
Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value. 
Ameriprise Financial Services, LLC. Member FINRA and SIPC.