3 Ways to Save for a College Education That Aren’t a 529 Plan

If you want to save for college, you likely know that you should save your money in a 529 plan.

A 529 college savings plan is a tax-advantaged account where you can save and invest money for future college tuition and qualified costs.

A 529 plan is the go-to answer for questions about how to save for college. But is it the best choice? It’s important to evaluate your options and explore alternatives before deciding what vehicle you’ll use to help pay for college when the time comes.

What’s wrong with a 529 plan?

There are a lot of great benefits to using a 529 plan to save for college. If you want to save your money in an account designed to help families create a financial plan to cover college costs, this option may be for you .

You can also make the most of this saved money because funds in a 529 are exempt from federal taxes. But, these plans also come with a few major disadvantages.

“The biggest downside to using 529s are that you have to use them for qualifying higher education expenses in order to get the tax advantages,” explains Stephen Alred, financial planner and founder of Ignite Financial.

“If your children don’t go to a higher education institution, you may have to transfer [the money] to another family member or eat the taxes,” Alred adds.

Alan Moore, a certified financial planner, and co-founder of XY Planning Network agrees.

“Funds in a 529 must be used for college,” Moore says. “Private secondary schools aren’t an option like they are for some other savings vehicles.”

If the intended recipient of all those colleges savings doesn’t go to college? Taking cash out and not using it for qualified college expenses means you’ll need to pay taxes and a 10% fee on any earnings.

529 college savings plan pitfalls

Even if the child you want to help does choose to pursue college, 529 funds count towards that child’s assets and EFC calculation for financial aid. This could prevent students from receiving need-based aid.

Feeling overwhelmed and confused? Trying to find help understanding 529 plans is also a major issue.

“Advisors cannot assist with managing 529 plans, so you are most likely on your own in figuring out how to invest that money once you open the account,” explains Moore.

That’s a problem because the investment options within the plans can be extremely limited and come with high fees. Without a professional who can help guide you, understanding the right financial moves to make is tricky. And mistakes can cost you money.

With all the downsides, it makes sense to ask about alternatives to 529 plans. The good news is that these plans are not the only options for college savers.

529 plan alternatives

“I’ve seen a plethora of ways to fund college expenses,” Alred says. “Some of them include using an HELOC, using the cash value within permanent life insurance policies, Roth IRA, prepaid tuition programs, UTMAs, UGMAs, among others.”

Ultimately, Alred says, “You can get really creative if you work a with college funding expert.”

Here are three of the most common alternatives you can use for your own college saving plan.

1. Using other savings accounts

529 plans are great because they allow you to invest your savings. That gives you the opportunity to earn a much better return on your money than if you were simply sticking cash in a savings account.

“Make sure you know how any decision to fund higher education expenses will affect all of your financial goals in the long-term before looking outside of 529s,” cautions Alred.

Savings accounts aren’t a good long-term option because the interest rates are so low. Your money will struggle to keep up with inflation — meaning that your savings could be worth less in 18 years than they are today.

Certificate of deposits, or CDs, provide a little bit more of a return but not much. For the best bet, you need to find another way to invest your money.

There are two ways you can put away money for college and invest it for a potentially larger return.

2. Roth IRAs

The first option is to utilize an account intended for retirement: a Roth IRA.

Roth IRAs are individual retirement accounts that allow people to save and invest after-tax money. You can withdraw any of your funds without penalty after age 59-and-a-half. You can also withdraw your contributions to your Roth IRA without penalty any time.

If you decide to withdraw your investment earnings before age 59-and-a-half you will be penalized, unless it’s for a qualifying reason. The good news is paying for college expenses for you, a spouse, your children or grandchildren is a qualifying reason, making Roth IRAs alternative college savings plans.

However, at the end of the day, Roth IRAs are designed for retirement. They come with some rules and regulations that are intended to help people save for retirement and to keep their money in their accounts until retirement.

Roth IRAs also come with contribution limits. You can only contribute up to $5,500 per year to your Roth IRA if you’re under the age of 50 and $6,500 if you’re older.

3. Brokerage accounts

Your second option is to utilize a simple brokerage account to save for college. Brokerage accounts are much like savings accounts in that you can deposit and withdraw money at any time without penalty.

Brokerage accounts give you access to any investment that you’d like to buy or sell. These can range from stocks and mutual funds to bonds, currency, and futures.

You can open a brokerage account through a broker. The options and what you can purchase will vary depending on the company you choose to open the account with.

There are no tax advantages associated with brokerage accounts. You’ll also be responsible for capital gains taxes if your money earns a return.

When choosing a brokerage account, watch for the fees associated with the product. There can be management fees on the account itself. And, depending on what you invest in, you may incur commission fees, too.

Many brokerage accounts also require minimum investments to open them, so you may need to save up your cash first before investing in one.

Evaluate your options for saving outside a 529 plan

There are a lot of options for college savings. Whether you choose the traditional 529 plan or explore alternatives like brokerage accounts, CDs, Roth IRAs, or other savings vehicles, you should understand the rules with the account you use.

Personal finance is personal, and using a certain account to save for college may make sense depending on your specific situation. If you decide to go outside of a 529 plan, consider talking to a fee-only financial advisor who can explain the pros and cons of any option you consider.

Ultimately, your best bet is to avoid regular savings accounts and CDs because the interest rates are so low. You can put your money to work and potentially earn a return by investing your savings instead.

If you’re saving for a child’s education and have a timeframe of five to 18 years before those funds are needed for college, investing in a 529, Roth IRA, or regular brokerage account can help you maximize the cash you set aside for those future expenses.

Interested in refinancing student loans?

Here are the top 6 lenders of 2018!

Lender	Variable APR	Eligible Degrees
Get real rates from up to 4 Lenders at once Check out the testimonials and our in-depth reviews! 1 Important Disclosures for Laurel Road. Laurel Road Disclosures VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. 2 Important Disclosures for SoFi. SoFi Disclosures Student Loan Refinance: Fixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org) 3 Important Disclosures for CommonBond. CommonBond Disclosures Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018. 4 Important Disclosures for Citizens Bank. Citizens Bank Disclosures Education Refinance Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
	2.57% – 5.87%	Undergrad & Graduate	Visit Earnest
	2.80% – 6.38%1	Undergrad & Graduate	Visit Laurel Road
	2.48% – 7.52%2	Undergrad & Graduate	Visit SoFi
	2.47% – 7.99%	Undergrad & Graduate	Visit Lendkey
	2.57% – 6.65%3	Undergrad & Graduate	Visit CommonBond
	2.72% – 8.17%4	Undergrad & Graduate	Visit Citizens