Which account is right for your education savings goals?

The yearly, monthly, or weekly amounts you save in your account.

Pay less in taxes with tax-deferred earnings, tax-free withdrawals, and tax deductions or credits.

Some states have tax benefits for qualified higher-education expenses as described below. However, it's less clear whether account owners can receive a state tax break for K–12 tuition expenses. To find out if you qualify for a state benefit for K-12 tuition, check the state where you pay state income tax—even if another state sponsors your 529 plan. You should consult your tax advisor for further guidance.

• Tax-deferred earnings: You don't pay taxes on the money you earn until you take it out.
• Tax-free withdrawals: If you use the money for college expenses (which is the whole idea), you won't pay any taxes on the money you earn—ever.
• Tax deductions: Many states let you deduct your contributions (up to a certain amount) from state income tax, and some even offer a tax credit in the amount of your contribution.

Put these tax benefits together, and they make a big difference. If you put $25 a week into an account that offers a tax deduction, you'll save $65 on taxes that year if your state tax rate is 5%. If you put that $65 back into your college savings—and if the account is also state tax-deferred—you could accumulate an additional $3,500 for college after 18 years, vs. an account with no tax benefits.

Pay less in taxes with tax-deferred earnings and tax-free withdrawals.

• Tax-deferred earnings: You don't pay taxes on the money you earn until you take it out.
• Tax-free withdrawals: With some accounts, if you use the money for college or K–12 tuition, you won't pay any taxes on your earnings—ever. It can make a big difference.

For example, imagine you and your friend both open college savings accounts at the same time and contribute $25 a week for 18 years. You choose an account with federal tax benefits, while he opens an account with no tax breaks. When taxes are due on his earnings, he takes money out of the account to pay them.

If you both earn 6% a year on your investments, when it's time for college, you'll have about $3,800 more in your account!

Have less of your savings count against your financial aid eligibility.

Accounts are treated differently when it comes to financial aid calculations. The federal government and your child's school might expect you to use anywhere from 0% to 20% of your savings to pay tuition, depending on your account type.

For example, imagine you have $60,000 saved for college when it's time to apply for financial aid. Those savings might not hurt your kid's financial aid eligibility at all—or they might chop it by $12,000 ($60,000 x 20%) in the first year alone.

Contribute an unlimited or large amount to the account without incurring taxes.

Some types of accounts put a limit on how much you can save for college in a single year.

Don't let your college plans be ruined by picking an account that can't handle the amount of money you plan to save!

Give your money more potential to grow.

Saving enough money for college is tough, but it's easier when you have some help. If you put your money to work and allow it to earn even more money, it will get you a lot closer to your goal.

For example, imagine you saved $25 a week for 18 years and kept it in a bank account earning 1% annual interest. When it's time for college, you'd have about $25,750—the $23,400 you put in and about $2,350 in interest.

Now imagine you took a little more risk in an account that earned 6% a year. After 18 years, you'd have about $42,600 instead.

That's almost $17,000 in additional money your child can use for college!

Get the value of your investment back at any time.

Some types of accounts are owned by the student you're saving for—so that money belongs to them, no matter what.

For your education savings goal, choose an all-in-one investment that will be rebalanced and managed for you over time.

With most types of accounts, you'll need to choose investments for your contributions, taking into consideration your time frame and the amount of risk you're willing to take. You'll then need to reevaluate your account once a year or so.

If that doesn't sound fun to you, think about choosing an account that offers Target Enrollment Portfolios. They make it easy to choose an investment based on the year you expect your beneficiary to start attending school—whenever that may be.

Use your money for anything, without penalty.

Accounts that offer you tax breaks for college savings generally (and not surprisingly) have a penalty if you don't use the money for qualified education expenses. So think about whether there's a high likelihood that you'll end up using the money for something else.

Keep control of your money.

It's your money, so you should decide how it gets used, right?

For some types of accounts, it's not that simple. If control of the money is turned over to your child when he or she becomes an adult, it might get used for college … or it might not. Sports car, anyone?

A savings plan sponsored by a state but generally open to anyone who wants to save for college.

Yes. Depending on your state, contributions are often tax-deductible, and earnings grow tax-deferred.¹ (Note that some states offer a tax credit instead of a tax deduction.) Withdrawals are tax-free when used for qualified higher-education expenses.²

Yes. Earnings grow tax-deferred, and there's no federal tax on withdrawals used to pay for qualified education expenses.

Yes, almost always. Only about 5% of the money in these accounts is counted against federal financial aid, even if the student is also the account owner. However, if the account is owned by a student who is not claimed as a dependent or if the account is owned by someone else (grandparent, family friend, etc.), it could have a larger impact.

Yes. The lifetime contribution limit per beneficiary is between $200,000 and $400,000, depending on the specific plan. You can contribute up to $75,000 ($150,000 if married and filing jointly) in a single year for each beneficiary without incurring gift taxes, as long as you don’t make any other financial gifts to that beneficiary for five years.

Yes. 529 plans offer a variety of investment portfolios to choose from, some of which are growth-oriented.

Yes. You can withdraw your money for any reason at any time, although you may pay taxes and a 10% penalty on the earnings portion of your withdrawal if you're not using the money for college.

Yes. 529 plans are the only plans to offer these all-in-one investment options that are automatically rebalanced and managed for you over time.

No. These accounts are meant to be used for college. However, you can use the money at a wide range of schools or transfer the account to a different beneficiary if you don't end up needing the money. Or you can withdraw your money for any reason and pay taxes and a 10% penalty on the earnings (but not on the contributions).³

Yes. You control the account, even after the person you're saving for reaches adulthood.

A Uniform Gifts to Minors Act or Uniform Transfers to Minors Act account owned by a minor that's off limits until he or she reaches adulthood. After that, the money can be used for any purpose.

No, you won't receive a state deduction or credit for money you contribute to these accounts, and they won't be exempt from taxes on the earnings. However, earnings will be taxed at the child's rate instead of the parent's rate.

No, you won't be exempt from taxes on the earnings in these accounts. However, earnings will be taxed at the child's rate instead of the parent's rate.

No. This account has significant impact on federal financial aid. The account belongs to the student, and 20% of the money in the account will count against federal financial aid.

Yes. You can put up to $15,000 a year ($30,000 for married couples) without triggering gift tax rules.

Yes. You can invest the money in almost any type of security, including growth-oriented investments like stocks.

No, you can't take this money back. The account belongs to the beneficiary (the person you open the account for), so you can only use it on his or her behalf until he or she reaches adulthood (at which time the beneficiary will control the account).

No. Age-based options aren't available.

Yes. These accounts aren't specifically for college, so the beneficiary can use the money for anything once he or she reaches adulthood.

No. Once the beneficiary reaches adulthood, he or she controls the money and can use it for any reason.

An account that holds stocks, bonds, or mutual funds. The money can be used for anything.

No. The money in these accounts receives no special state tax treatment. You'll pay tax on earnings as they accrue.

No. The money in these accounts receives no special federal tax treatment. You'll pay tax on earnings as they accrue.

Yes, if you (as the parent) own the account, only about 5% of the money in these accounts is counted against financial aid.

Yes. You can invest any amount.

Yes. You can invest the money in almost any type of security, including growth-oriented investments like stocks.

Yes. You can withdraw the money for any reason at any time.

No. Age-based options aren't available.

Yes. You can use the money for anything.

Yes. You control the account.

An account that can be used for any level of education (kindergarten through postsecondary).

Vanguard no longer opens new ESAs (also known as "Coverdell ESAs"), nor do we allow new ESAs to be created with money from an account transfer.

No. The money in these accounts receives no special state tax treatment. You'll pay tax on earnings as they accrue.

Yes. Earnings grow tax-deferred, and withdrawals are federal income tax-free when used for qualified education expenses.

Yes, almost always. Only about 5% of the money in these accounts is counted against federal financial aid, even if the student is also the account owner. However, if the account is owned by a student who is not claimed as a dependent, or if the account is owned by someone else (grandparent, family friend, etc.), it could have a larger impact.

No. You can contribute a maximum of $2,000 each year per beneficiary (the person you're opening the account for).

Yes. You can invest the money in almost any type of security, including growth-oriented investments like stocks.

Yes. You can withdraw your money for any reason at any time, although you may pay taxes and a 10% penalty on the earnings portion of your withdrawal if you're not using the money for college.

No. Age-based options aren't available.

No, these accounts are meant to be used for education. However, you can use the money for elementary, secondary, and postsecondary education, or change the beneficiary if you don't end up needing the money. Or you can withdraw your money for any reason and pay taxes and a 10% penalty on the earnings (but not on the contributions).

Yes, for the most part, you control the account. However, once the beneficiary reaches age 30, if there's still money in the account, you'll have to give the money to him or her (and pay taxes and penalties) or roll it over to another beneficiary.

No contributions can be made to a beneficiary's Coverdell ESA after he or she reaches age 18, unless the beneficiary is a special needs beneficiary.

On December 22, 2017, the president signed new tax legislation into law. The following describes several new provisions related specifically to 529 plan accounts, beginning with the 2018 tax year:

• Account owners can use assets to pay for qualified K-12 expenses up to $10,000 per year per student.
• Account owners can treat K-12 withdrawals as qualified expenses with respect to the federal tax benefit. The tax treatment of such withdrawals at the state level (determined by the taxpayer’s state of residence) is less clear, and states may ultimately determine the treatment of these withdrawals independently. Account owners should consult their tax advisors for further guidance.
• Account owners can roll over 529 plans to ABLE plans, up to the ABLE annual contribution limit. States may need to expand the definition of qualified withdrawals to include rollovers into ABLE plans. Without a change to the definition, such rollovers could be categorized as nonqualified withdrawals.

We'll provide more information as additional details about the effects of the tax bill become clear. We encourage you to consult a qualified tax advisor about your personal situation.