Are you thinking about setting up an account to save for your child’s college education? There are a few options available with many benefits depending on your situation. However, the important thing to keep in mind is it’s never too early to begin saving for your child’s future. The cost of a post-secondary education will continue to increase over time, so the sooner you begin saving, the better!

529 Plan

A 529 Plan is an account created under the Internal Revenue Code Section 529 to invest money for a child’s education. Money invested into this type of plan is managed by a parent/guardian and is tax-free as long as it’s used to pay for tuition at a qualifying post-secondary institution. This type of plan may also be used to fund tuition at a public, private, or religious primary and secondary institutions.

Next, a 529 Plan is often viewed as a parent’s asset; therefore, it will not adversely impact financial aid eligibility. Also, family members can make contributions into an established plan. Some investment firms even offer the ability for family and friends to easily make contributions into an established account.

Tax Advantages

A 529 Plan offers a few tax advantages that make them attractive to parents/guardians. For starters, any earnings in the account grow tax deferred and may be eligible for state tax deductions. Distributions from the account for qualified educational expenses are tax-free. Consult with your tax advisor for further information.

Investment Options

Age-Based Strategy Custom Strategy
This type of strategy will invest funds in portfolios that automatically become more conservative as a child nears college age. You allocate the investments among static, individual fund, age-based, and bank deposit portfolios.


A UGMA/UTMA Account is another type of investment account that is set up under the rules of the state’s Uniform Gift to Minors Act or Uniform Transfer to Minors Act. Money placed into this type of account will remain until a minor reaches the appropriate age to manage it, typically 18 or 21. Further, a UGMA/UTMA Account offers a broader range of investment options compared to a 529 Plan. There is no limit on contributions into the account and it can accept any type of asset, even real estate. Another important thing to note is a UGMA/UTMA Account is often viewed as a student’s asset when being considered for financial aid, which may affect eligibility.

One important issue to note with a UGMA/UTMA Account is once the account beneficiary reaches either 18 or 21, they can use the money for other things and the parent/guardian cannot take back the money they invested into the account.

Next, interest, dividends and capital gains for a UGMA/UTMA Account are reported under a child or minor’s social security number. The first $1,050 is taxed at the child’s tax rate; any subsequent annual earnings above $2,100 are taxed at rates that apply to trusts and estates.


There you have it! While a 529 Plan and a UGMA/UTMA Account have their advantages and disadvantages, the decision on which plan to invest in will ultimately depend upon your financial situation. It’s always best to consult with your tax advisor for further guidance.

Be sure to subscribe to our blog to receive all the latest information and financial tips from Franklin Savings Bank.


Comments are closed.

Written by Dawn Beers

Dawn Beers

Dawn heads up our marketing department where she is responsible for the general oversight and management of the Bank’s marketing and public relations initiatives. This involves managing the planning, organizing and directing of our advertising, public relations, product development, sales promotion and research efforts.

View Profile