College savings solutions

With the cost of a college education continuing to rise, it’s essential to start saving as early as possible. A 529 plan provides a variety of benefits for you to save for college expenses, including tax-deferred compounding and the potential for tax-free withdrawals if the money is used to fund qualified expenses such as tuition, fees, books and supplies.


Tax-free savings growth

Investments in a 529 account grow tax-deferred while traditional taxable accounts are charged taxes annually on capital gains, dividends and interest. This means that 529 accounts retain more assets, creating a larger asset base which can compound over time.

The chart below shows the growth of a $70,000 portfolio invested when the child is born in both a taxable account and a 529 account.

Front of chart

Chart: 529 Savings grow faster

As the chart shows:

If you invest $70,000 when your child is born, over five years a 529 plan could be worth around $4,000 more than a taxable account.

Over 18 years, the difference could be over $28,000.


Comparing account types

There are many different ways to save for college including popular options like Coverdell ESAs and UGMA/UTMA accounts.

The chart below compares 529 plans to Coverdell ESAs and UGMA/UTMA accounts

Back of chart

Chart: Points to consider when charting your education savings course

As the chart shows:

529 plans have more favorable contribution rules than Coverdell ESAs. While Coverdell ESAs have a contribution limit of $2,000 per person per year, 529 plans have very high contribution limits (e.g., $394,000 lifetime limit for Ohio's 529 plan). Additionally, all contributions to a Coverdell ESA must be made before the beneficiary turns age 18 while 529 plans do not have age limits for contributions.

You can invest in 529 plans even if you make too much to contribute to Coverdell ESAs. Individuals who earn over $110,000 (single) or $220,000 (married, filing jointly) may not contribute to Coverdell ESAs, but 529 plans have no income limit.

The assets in a 529 plan can easily be used for graduate school expenses. On the other hand, assets in a Coverdell ESA must be used or transferred by the time the beneficiary is 30 years old.

Using 529 may help you receive more financial aid than UGMA/UTMA accounts. That’s because assets in a 529 plan are considered the account holder's when applying for financial aid, even though the account is in the beneficiary’s name. That means the value of the account is counted at a lower rate (5.64% vs. 20%) when calculating a student’s financial aid eligibility.


Points for professionals

  • Discuss with your clients the many different account options for saving for college.
  • Consider the BlackRock CollegeAdvantage 529 Plan as a way to save for college.
  • Contact your BlackRock representative.
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