Which Option Offers the Best College Savings Solution?

by | Sep 11, 2023 | Vanguard IRA | 45 comments




What Is The Best Option For College Savings?

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What Is The Best Option For College Savings?

Saving for college has become increasingly important as the cost of higher education continues to rise. With so many options available for college savings, it can be overwhelming to choose the best option for your individual needs. In this article, we will explore some of the most popular college savings options and help you decide which one is the best fit for you.

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1. 529 Savings Plan:
One of the most popular choices for college savings is a 529 savings plan. These state-sponsored plans offer tax advantages and can be used for qualified education expenses without incurring taxes. Money invested in a 529 plan grows tax-free, and withdrawals for college expenses are usually tax-free as well. These plans often offer a wide range of investment options and can be opened by anyone, regardless of income level. However, it’s worth noting that 529 plans have restrictions on how funds can be used, and taking money out for non-education expenses may result in penalties.

2. Coverdell Education Savings Account:
Similar to a 529 plan, a Coverdell Education Savings Account (ESA) offers tax advantages for college savings. One notable advantage of a Coverdell ESA is that funds can be used for K-12 education expenses in addition to college costs. However, contributions to a Coverdell ESA are limited to $2,000 per year per child, and there are income limits for eligibility. Additionally, funds in a Coverdell ESA must be used by the beneficiary’s 30th birthday, or they may be subject to taxes and penalties.

3. Custodial Accounts:
Custodial accounts, often known as UTMA or UGMA accounts, are another option for college savings. These accounts allow a parent or guardian to hold and manage funds on behalf of a minor. While there are no contribution limits, funds in a custodial account are considered the property of the child when they reach the age of majority (usually 18 or 21, depending on the state). This means that the child has control over the funds and can use them for any purpose, even if it’s not for college expenses.

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4. Roth IRA:
Although primarily designed for retirement savings, a Roth IRA can also be utilized as a college savings account. While contributions to a Roth IRA are not tax-deductible, qualified withdrawals, including those for education expenses, are made tax-free. One significant advantage of using a Roth IRA for college savings is the flexibility it offers. If the child decides not to attend college, the funds can be used for retirement, and the account owner has greater control over the investments within the account. However, contributions to a Roth IRA are limited based on income, and there are penalties for early withdrawals.

Ultimately, the best option for college savings depends on your personal circumstances and preferences. It’s crucial to consider factors such as tax advantages, contribution limits, flexibility, and how the funds can be utilized. Speaking with a financial advisor can provide valuable guidance in selecting the best option for your specific situation.

In conclusion, saving for college is a significant financial goal for many families. The best option for college savings will vary depending on individual needs, preferences, and circumstances. Consider the available options, weigh the advantages and disadvantages, and consult with a financial professional to determine the most suitable approach for building a college fund. Remember, starting early and being consistent with contributions can go a long way in achieving your college savings goals.

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45 Comments

  1. Ed A

    He complains about government and it’s is own republicans/confederates party that are hell bent on destroying America.

  2. PM

    Is it true you can not open/contribute to an ESA if you make over $110k as an individual or $220k married filing jointly?

  3. J A M

    Dave keep your personal political opinions to yourself. Stay on topic and talk finances.

  4. poopflinger1492

    Dear lord. I just wanted an answer to a legitimate financial question. I couldn’t stick around for the answer while he flapped his political yap trap. Keep politics in politics. The ceaseless stream of political bitching is why nothing gets done in this country anymore. Stay in your lane and I’ll stay in mine.

  5. Intrinsik

    What kind of ESA does your grand babies have?

  6. Greg

    Are you ever going to answer the question in the title?

  7. Art Is Your Friend

    I recommend The College Specialist based in Irvine California. You can find his website online. He really can help.

  8. natalia alvarado

    My son is a freshman I need help with saving money for him .

  9. MGD

    I won’t want socialized military

  10. Sasha Swan

    thanks also some apps may help like College souk

  11. Ballzdeepr

    got a hardware wallet, earn 5-15% a year on stable coins and they can decide what they want to spend it on

  12. Nickolas Rodriguez

    529 provides housing even at half time no matter community college or private correct?

  13. Kevin Reinhout

    If I have two kids do I need two 529 plans or can you use one 529 plan for both ?

  14. daprinceomar

    everyone having access to a higher education and not be tens or hundreds of thousands in debt would NOT be a disaster. Ramsey i respect you but you are out of touch if you think our population is better off not being more educated.

  15. MaxShiraz

    You can be 100% sure that whenever the far left fascists decide to make college "free" they will do so by stealing 529 and ESA funds from those that actually planned for and save for college

  16. Mary Moore

    what about Gerber Life Insurance? Can't you use that as a dual plan to save for college and insurance policy if the childs passes away

  17. 4656superman

    Why would free college be a disaster???

  18. Raven and Roses

    Would you support free college tuition for "good" students ?

  19. Carmen Est

    I dont encourage my kids to go to college, unless they want to… am i bad mom? I feel like u dont need college to have a great feature

  20. Mark Gabriel Zamora

    No one is smarter than my wife, she came back home to our homeland Philippines to get Nursing Bachelors worth $10k, for 3 years. And Come back to Cali with Nursing
    Bachelors. Avoided $100k+ student loan. Lol

  21. Hubbs

    I think there’s 157 liberals who accidentally clicked on this lol. Great info Dave, thank you!

  22. matthewhenri

    Good grief Dave, why does everything have to be so political. It was a simple question and you turned it into a semi rant about liberals.

  23. Clear_Head

    Dave is so political with this question.

  24. Dashin’ with Ashlie

    I’m going to start saving for college and my plan is to save $20,000 after 4 years in college so my coal is to pay off my loans right after I graduate

  25. The Millies

    Jesus it took her forever getting that question out.

  26. Byron Smith

    So K-12, police, roads, fire fighters ok. It's "brain disease" when we get to college. Got it. It's hard to follow these rules.

  27. Eli Garcia

    I, a Democrat tried to listen to Ramsey about advice then he starts babbling about Liberals and brain disease…..i tried LOLOLOLOL

  28. L.A.M

    If you have a 529 and dont have kids can you use it as a retirement fund at 65?

  29. l00katy0utb3

    ESA is a bad move, its entire thing is taxable while a 529 isn't.

    ESA has a max contribution of 2k while a 529 has a limit of 75k (you can open the account with up to 150k). 529 plan have the option to control how the money is invested. It's a false statement from what Dave Ramsey, I setup funds to purchase.

    If you're concerned about the future of student loans, you can always pull out all of the money from the 529 and only pay a 10% tax, ONLY on the earnings, the rest you contribute is free and clear.

    ESA mature when the beneficiary turns 18, you don't control the fund (parent) only the beneficiary (child). Also, you have 30 days to withdraw the money once the child turns 18 while a 529 can keep it as long as you live and pass it down to your kids and grandkids.

    I went with a 529 because its future proof and it does act like a roth, I think its better than a roth since roth has a contributing limit of 6k as of 2020 and can only pull money out @ retirement age without any heavy tax penalties.

  30. Virtual Math

    You're a political hack.

  31. Christian Alvarez

    So Dave is against free college, against slashing away the student debt, against federally backed and private student loans, and against tuition costs being so high. So what is he for? I legit wonder what is his solution for a student from a low income background supposed to do if his parents could not open a college savings account for him/her.. no college for them?

  32. Charlotte Bingham

    One thing I learned is that giving up is never an option, the mistakes I made took me to where I am today. I never thought that trading forex from the comfort of my home could solve and satisfy me financially, but I given all the credit to @carlos_1uptrades on instergram who helped me changed my life Through forex trading.

  33. Felicia Sherbert

    After five years of marriage i found out the one thing that makes it difficult is financial struggle, its not like my husband and i aren’t making money it’s just we barely have time for each other and there’s no amusement or new event it’s just work and the kids and that was fine but i wanted more..then i heard of a financial advisor on the radio who basically makes money for me and right now i have close to 100grand with her in my portfolio. now we pay for our vacation without breaking a sweat or losing sleep

  34. E-tray 5

    So what happens if you save in a ESA or a 529 and you got all this money saved and your child get a scholarship…. do they lose the scholarship because they have money set aside for them in one of these savings account???

  35. Ashley Taylor

    What financial vehicle will accumulate more cash value? An Indexed Universal Life or a Whole Life Policy?

  36. El Chingon

    Dave is cool but he’s kinda ignorant. How is moving around our government money to help fund education a bad thing? I knew kids who got into d1 schools or got opportunities to go to good schools that couldn’t go because of the financial cost. How is helping them out a bad thing? Not very Christlike of you ask me. Oh, but to send our kids to war? No problem -_-

  37. jammin yammin

    took her almost 2 mins to ask a question. surprised he didnt tell her to spit it out

  38. Dat Nguyen

    What is ESA ??

  39. Jennifer Maynard

    I went to college without debt by working full time for a financial institution and taking advantage of the tuition reimbursement. Nonetheless, I am saving for my daughter’s colleague with a 529. I do not want her to ever have to take a loan.

  40. Lucas pal

    Quit shielding student loans from bankruptcy and watch how quickly student debt goes down.

  41. Christoffer John

    As a Norwegian, its hard to wrap my mind around the fact that someone would opposite ” free edication”. As we all know, nothing is. The goverment gives us money for books, etc, however we pay nothing to the university. This loan has a max yearly limit. If you graduate/finish yearly, 20% of the loan is awarded to you for free. The rest is on a fixed interest rate of 1% for the rest of your life. So its easy to pay it back. This applies wheter you are studying to become a dentist or a historian. We have a high restribution of wealth. What I can see from these videos is a load of people making an enormous amount of money, and the rest almost nothing. Its weird to see that this is a system anyone would like to have and live under. Its like insanly strict laws, at the point you have nothing left to loose, you start seeing dangerous development.

  42. D H

    You can give sound advice without dwelling negativity into politics . I respect what you had to say until you called being a “liberal a brain disease.” Really Ramsey ??

  43. Bin Dang

    Pay for your college or don’t go at all.

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