College Savings Options Beyond Traditional 529 Plans

Saving for college often starts with the same conversation—open a 529 plan and start making regular contributions. While 529 plans are a common way to set aside money for future education costs, they're not the only option. Families who want extra flexibility, control, or different tax treatments may want to look beyond the traditional path.

There are other tools available that fit different goals and values, especially when a child’s future might include more than just a four-year college. Some options allow more freedom with how the funds are used, others come with additional tax advantages. The good news is there’s no one-size-fits-all approach. It’s possible to build a plan that mixes or matches different strategies to support your child’s learning goals in a way that fits your personal finances.

Coverdell Education Savings Accounts (ESAs)

A Coverdell Education Savings Account (ESA) works like a 529 in some ways, but it offers more flexibility when it comes to the kinds of schooling the money can be used for. A Coverdell account lets you save money for a student’s education-related expenses from kindergarten through college, not just college tuition.

The big benefit here is control. With a Coverdell ESA, you can use the funds for things like books, tutoring, or a new laptop for school. It even covers private elementary or high school tuition. That’s a big deal for families who want options earlier in a child’s academic life.

But this account has some limits. It caps how much you can contribute each year, and once the student reaches a certain age, the funds have to be used or transferred. Also, compared to other education funding methods, the earnings may not grow as fast if contribution limits can’t be fully used every year.

When stacked next to a 529 plan, the flexibility of Coverdell accounts stands out. While 529 plans focus heavily on college expenses, Coverdell accounts allow more freedom at the lower grade levels—something that’s often overlooked when people start planning. Some parents choose to use both, covering a wider range of possibilities without missing out on available advantages.

Custodial Accounts (UTMA/UGMA)

If you want to save for education but also keep the door open for other uses, custodial accounts under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) might be worth exploring. Here, the money is held in the child’s name, but it’s controlled by an adult until the child reaches the age of majority.

These accounts are straightforward to set up and don’t place restrictions on how the funds are used. That means when the child becomes an adult, they can spend it however they choose even if it’s not on education.

Here are a few things to consider:

1. You can contribute cash or other assets like stocks or bonds.

2. The money can grow over time and be used for college, vocational training, or something totally different.

3. Since the account belongs to the child, it could impact financial aid eligibility later.

4. Once the child comes of age, the account fully belongs to them, and they can use the money however they want.

That last point is worth thinking about. If your plan is for the money to pay for school, you’ll need to trust that your future adult child will view it the same way. These accounts make sense when you’re trying to keep options open but are confident in the child’s judgment down the road.

A good example would be a family that isn’t sure if their child will go the traditional college route. Maybe they’re considering career-training programs, starting a business, or traveling to learn. In that case, the wide use and flexibility of a UTMA or UGMA account could better fit the family’s mindset compared to something more locked in.

Roth IRAs For Education Funding

While most people think of Roth IRAs as a retirement tool, they can also serve a dual purpose when used carefully. A Roth IRA lets you contribute after-tax dollars, and your contributions can be pulled out at any time without penalty. If you use the account for qualified education expenses, earnings can be withdrawn early without the usual tax hit.

This setup creates an interesting possibility: an account that helps save for college and retirement at the same time. Parents who aren’t sure which path their child will follow may like having the flexibility a Roth IRA offers. It allows you to grow your savings and wait until the picture becomes a little clearer down the line.

Some advantages to using a Roth IRA for education:

1. Contributions can be withdrawn at any time, for any reason.

2. Qualified withdrawals for education expenses avoid the early withdrawal penalty.

3. If the funds aren’t needed for schooling, they can stay in the account and keep growing for retirement.

There are some tradeoffs, though. Annual contribution limits are lower compared to other education accounts. Roth IRAs also have income eligibility rules, so not everyone can contribute. And tapping into long-term retirement savings for short-term education needs might not be the right choice for everyone’s situation.

Still, if you’re looking for flexibility, or if you're starting later and want a backup use for the funds, a Roth IRA can offer security and control. It fits well for families who are figuring things out as they go but still want to keep progress moving.

Using U.S. Savings Bonds For College

Savings bonds may not be the first thing that comes to mind when thinking about education savings, but they’ve been around for a long time and can still serve a purpose. Series EE and Series I bonds are backed by the U.S. government and are considered a very low-risk way to save.

They can be used for qualified education expenses if certain conditions are met, like the bond owner’s income falling below specific levels, and using the bonds only for tuition and fees not books or room and board. Also, the bond must be issued in the parent’s or student’s name, depending on the timing and use.

What makes savings bonds appealing for some:

1. Low risk compared to market-driven investments.

2. Tax advantages may apply when used for education expenses.

3. Can be a conservative addition to a broader education funding plan.

But they’re not without limits. The interest rates are lower compared to stocks or mutual funds, and you may need to meet specific income guidelines or holding periods to get any tax benefit. This means they might not work on their own, especially if you’ve got a clear need for faster growth.

For families looking to balance risk and return, savings bonds can be a modest piece of the puzzle. They’re especially helpful if you want to avoid market swings or need something more predictable in your strategy.

More Than Just Savings: Combining Your Options

When it comes to planning for a child’s education, it doesn’t have to be just one account or method. You can mix and match different tools depending on your financial goals, how far away college is, and what your child may want to pursue.

A few pointers to keep in mind:

1. Combine flexibility and growth. Use something like a 529 for college tuition, but keep a Roth IRA in place for added choices.

2. Think about timing. Short-term goals may benefit from low-risk options like savings bonds, while long-term ones could grow better in tax-advantaged accounts.

3. Keep control in mind. UTMA and UGMA accounts transfer control to the child at a certain age, while other accounts can stay managed by the parent.

Piecing together the right plan starts with understanding each option fully. Then you can figure out how they work together to create a stronger foundation. Having variety makes the plan more adaptable, especially if things shift over the years.

Finding The Right Mix For Your Family

Every family is different. What works for one household might not suit another. That’s why looking beyond a standard 529 plan can open up better, more personal choices. Whether you're aiming for early education flexibility, long-term returns, or just need more control, the tools are there to build something that works.

Planning around education funding doesn’t have to be overwhelming. With the right mix of accounts and a clear understanding of how each one fits your goals, the process becomes easier to manage. Give yourself room to adjust and stay open to new possibilities as your child’s future takes shape.

As you navigate the options for education funding to support your child's future, keep in mind that a well-rounded strategy can make a big difference. At St. George Wealth Management, we're here to help you build a plan that fits your family's goals. Explore your choices and feel confident knowing you're preparing for what's ahead.