Compare Options | Capital Group

Compare your education savings options.

Deciding how to save for your child’s education can feel complicated. There are many types of savings accounts and investment plans, and each has its own pros and cons.

Take a look at our comparison table to help you make the right choice for your family. In most cases, “qualified education expenses” generally include tuition, fees, room and board, computers and software, textbooks and other education-related supplies.

Woman studying a wall with papers and notes

Key takeaways

  • A CollegeAmerica® 529 education savings plan, Coverdell Education Savings Account (ESA) and UGMA/UTMA (Uniform Gifts/Transfers to Minors Act) are three popular ways to save for education.
  • There are advantages and disadvantages to consider, including tax benefits, qualified expense withdrawals and who controls the account.
  • As account owner, you control the account and how the money is spent in a 529 savings plan.

CollegeAmerica 529 savings plan

Coverdell ESA

UGMA/UTMA
Account

Why it’s popular

Parents who want to save money for their child’s college tuition and expenses and/or K-12 tuition can take advantage of federal and possible state tax benefits and keep control of the account.

Learn more

Parents who want to save money for their child’s education and expenses, K-college, can take advantage of federal tax benefits and allow their child to receive the balance of the funds once he or she reaches 30 years of age.

Learn more

Parents who don’t want to be limited to saving for education can take advantage of a lower tax rate on a portion of the earnings and allow their child to take control of the funds once he or she reaches adulthood.

Learn more

Impact on taxes

Can I deduct my contribution from my state taxes?

Yes, if you live in Virginia.

Learn more

Am I taxed on the earnings in my account?

There is a limited tax benefit under the parent's tax rate.
An initial amount of UGMA/UTMA earnings remain untaxed or taxed at a very low rate, but all remaining earnings are taxed at the parents’ highest marginal rate.

Learn more

Am I taxed on my withdrawals if they’re for qualified education expenses?

Am I taxed on my withdrawals if they’re not for qualified education expenses?

Yes, taxable and possible 10% penalty.

Learn more

Yes, taxable and possible 10% penalty.

Learn more

Yes, at usual tax rate.

Learn more

Important rules

Is there a limit on my income that affects my ability to contribute?

Yes, your ability to contribute is phased out as your adjusted gross income increases.

Learn more

Is there a limit on the total amount of contributions and earnings for the account?

Yes, there's no annual limit on contributions, but each plan has a limit on the total account value — which could be more than $500,000.

Learn more

The maximum annual contribution is $2,000 per year per beneficiary from all sources.

Learn more

Can I make qualified withdrawals for higher education tuition and expenses, which include books, meal plans and housing?

N/A — this account is not education-specific.

Learn more

Can I make qualified withdrawals for K-12 tuition and expenses?

Yes, only for tuition, which is limited to $10,000 per student per year. (Not all states allow this use of assets in a 529 savings plan.)

Learn more

N/A — this account is not education-specific.

Learn more

Can I make qualified withdrawals for non-education expenses?

N/A — this account is not education-specific.

Learn more

What is the impact on my child’s ability to receive financial aid?

Limited, depending on who is the owner of the account.
Money in a 529 savings plan that is owned by the parent is considered a parental asset and is factored into the Expected Family Contribution (EFC) determination at a lower percentage. Only 5.64% of this savings is counted against financial aid, which can make qualifying for financial aid easier.

Learn more

Limited, depending on who is the owner of the account.
If the money in a Coverdell ESA is owned by a parent, then 5.64% of the assets are counted against financial aid.

Learn more

Significant. Money in an UGMA or UTMA is considered an asset of the student and is factored into the EFC determination at a higher percentage. This designation can work against your family when your child applies for financial aid.

Learn more

Who controls the money in the account?

Account owner (often a parent or grandparent) maintains control.

Learn more

Beneficiary, or the person the account is for (usually a minor), gains control at age 30.

Learn more

Beneficiary gains control at the age of majority, usually 18 or 21, depending on state.

Learn more

Is there an age limit for the beneficiary?

No, it can be opened for a person of any age.

Learn more

Yes, when beneficiary reaches age 30.

Learn more

Yes, when beneficiary reaches the age of majority, usually 18 or 21, depending on state.

Learn more

Can I change the beneficiary of the account?

Investment choices

Do I have a wide choice of how I invest my money in the account?

Can I change the way my money is invested in the account?

Yes, up to twice a year.

Learn more

Yes, unlimited.

Learn more

Yes, unlimited.

Learn more

Am I able to invest in the American Funds College Target Date Series®, based on the date I'll use the money?

Ready to create a detailed plan?

Go to the college calculator

Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses, summary prospectuses and CollegeAmerica Program Description, which can be obtained from a financial professional and should be read carefully before investing. CollegeAmerica is distributed by American Funds Distributors, Inc. and sold through unaffiliated intermediaries. 

Depending on your state of residence, there may be an in-state plan that provides state tax and other state benefits, such as financial aid, scholarship funds and protection from creditors, not available through CollegeAmerica. Before investing in any state's 529 plan, investors should consult a tax advisor. 

If withdrawals from 529 plans are used for purposes other than qualified education expenses, the earnings will be subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax. State tax treatment of K-12 withdrawals varies. Please consult your tax advisor for state-specific details.

American Funds Distributors, Inc., member FINRA.

This content, developed by Capital Group, home of American Funds, should not be used as a primary basis for investment decisions and is not intended to serve as impartial investment or fiduciary advice.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and should not be considered advice, an endorsement or a recommendation.