529 Plan versus Coverdell: What’s the Best Way to Save for College?

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If you’re a parent, paying for college can put a serious strain on your budget, especially as tuition prices continue to climb. According to a U.S. News study, during the 2022-2023 school year, the average cost of tuition at an in-state, public four-year university is $10,423. The cost jumps even higher for students enrolled at private colleges. Saving early and often can soften some of the blow, but you have to make sure you’re stashing your cash in the right place. Aside from personal savings accounts, the most common ways for parents to save for college are 529 plans and Coverdell Education Savings Accounts.

What is a 529 Plan?

A 529 plan, also known as a qualified tuition plan, is a tax-advantaged account that you can set up on behalf of a designated beneficiary. Anyone can be a designated beneficiary including a relative, friend, yourself, etc. There are no age restrictions to consider when choosing a beneficiary.

All 50 states offer at least one 529 plan and some states offer more than one. You don’t have to be a resident of a particular state to participate in their plan. Depending on the state, you may be able to choose between a 529 savings account or a prepaid tuition plan. With a prepaid plan, you can pre-purchase future college credits at current tuition rates.