Savings plans

Compare three ways that families can set aside savings for education.

Most financial institutions across the country offer two U.S. government programs that allow adults to set aside savings for their children or grandchildren’s education. The first is called an Education Savings Account. The second program is called a 529 Plan, and there are two basic types.

School savings plans

Education Savings Account 529 Plans
State-sponsored college savings plan Pre-paid tuition plan
Save $2,000 per year until age 18
Savings are placed in investments such as stocks and bonds
Account holder generally does not pay income tax on money they earn
Can contribute large dollar amounts
Savings placed in investments selected by the state
Offers tax advantages
May involve fees and risk
Pay tomorrow’s tuition at today’s rates
May be offered by states or private colleges and universities

Both Education Savings Accounts and State-Sponsored College Savings Plans are different than regular savings accounts. The account holder is actually placing money into investments. Instead of earning interest on their deposits, they make a profit if their investments go up in value.

Note: A pre-paid tuition plan allows a person to pay for tuition in advance at today’s rates. That can save money since the cost of tuition can frequently go up.

Click the Next button to explore another source of education money: grants and scholarships.