Guide to college savings plans and education savings accounts

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 the beneficiary’s K-12 and postsecondary qualified 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). Also, qualified distributions from 529 plans can be made for K-12 (public, private or religious elementary and secondary) tuition expenses at a maximum of $10,000 per beneficiary.
• 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• The earnings withdrawn from a 529 savings plan that are not used for qualifying education expenses are generally subject to income tax and an additional 10% penalty.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 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 lifetime limit) for the account’s beneficiary and $10,000 lifetime limit for each of the beneficiary's siblings. You should consult a tax specialist regarding your specific situation.
• Under SECURE Act 2.0, beginning in 2024, certain assets in 529 qualified tuition program accounts will be eligible to directly transfer on a tax-free basis to a Roth IRA maintained for the benefit of the beneficiary, Eligibility is subject to certain conditions and criteria.

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 modified adjusted gross income between $190,000 and $220,000, and for single filers with modified adjusted gross income between $95,000 and $110,000.
• The earnings withdrawn from a Coverdell account that are not used for qualifying education expenses are generally subject to ordinary income tax and an additional 10% tax. You should consult a tax specialist regarding your specific situation.

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.