Saving for College: A Comparison of Section 529 Plans with Other Options

March 2001
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Saving for college is a very important and challenging task for many American families. In this Research Dialogue, Jennifer Ma and Douglas Fore of the TIAA Institute describe and discuss the features of tax-favored Section 529 plans and compare saving through these plans with other options, including UGMA accounts, Series EE and I savings bonds, tax-favored retirement accounts, Education IRAs, and after-tax mutual funds. The authors also provide several numeric simulations of asset accumulations for Section 529 plans, mutual funds, and Series I savings bonds. Given some reasonable assumptions about rates of return, taxes and expenses, accumulations in Section 529 plans exceed those in comparable after-tax mutual funds. Final asset accumulations in Section 529 plans also exceed those in Series I bonds in many situations.