If you’re starting to save for college costs, there are a variety of accounts with special tax structures you could consider that could help your savings grow. Remember that it’s never too early (or too late) to start saving, and saving little by little over time can really add up. Here are a few examples of tax-advantaged college savings accounts.
529 college savings plans
529 savings plans are flexible, tax-advantaged accounts designed specifically for education savings. Earnings on contributions grow federal income tax deferred, and withdrawals taken to pay for qualified higher education expenses such as tuition, fees, and room and board are free from federal income taxes.
With a 529, you may also be able to offer family and friends a simple way to gift contributions for your child.
Uniform Gifts to Minors Act/Uniform Transfers to Minors Act (UGMA/UTMA)
UGMA/UTMAs are custodial accounts that let parents (and others) make an irrevocable gift to a minor that can be used for college or any other purpose. For federal tax purposes, investment earnings are generally taxed at the minor’s tax rate, which is usually lower than a parent’s rate.