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Know Your Choices When You’re Making a College Savings Plan

“Oh, they grow up SO fast!” New parents hear that a lot, and it’s absolutely true. And it’s a reminder that NOW is the time to start putting money aside for college. Here’s an overview of the college savings plan choices available to you:

Know Your College Savings Options

529 Savings Plans

These popular, education-specific accounts invest in mutual funds or exchange-traded funds with the objective of higher returns.


  • Annual contribution limits are higher than Roth IRAs.
  • You pay no taxes on their growth in value.
  • You can change the beneficiary with no penalty. So if your daughter wants to take a “gap year” after high school, you can designate the proceeds to a sibling—or even yourself—as long as it’s going toward qualified educational expenses.
  • When held in the parents’ name, there is a minimal effect on financial aid awards.


  • There are penalties if the funds are not used for educational expenses.
  • Plans are subject to stock market volatility, so it’s important to reduce your risk profile as college gets closer (many 529s do this automatically).

Savings Accounts

Two-thirds of Americans who are putting aside cash for college use dedicated savings accounts.


  • No restrictions on how you use the proceeds
  • Will not lose value
  • Federally insured


  • Very low interest rates
  • No tax advantages
  • Easy access without penalties (as the saying goes, “life happens,” making it hard to put that money back)

Roth IRAs

You can use your Roth as a combination education/retirement savings account.


  • Vast range of investment options
  • Tax-free growth
  • Funds not used for education stay invested for retirement


  • Annual contribution limits are much lower than 529s
  • Withdrawing funds for education can jeopardize your retirement savings
  • Coverdale Education Savings Accounts

The Right Account for a Smart Start

Our LevelUp Youth Account is designed to help young people build healthy banking habits at every age.

Coverdale Education Savings Accounts

ESAs can help fund education from kindergarten through graduate school.


  • Qualified withdrawals are tax-free
  • Wide range of investment options


  • Very low annual contribution limits
  • Complicated beneficiary changes

Share Certificate Accounts, CDs and Savings Bonds

These are conservative, “set it and forget it” options.


  • Funds are insured
  • Fixed interest rates, not subject to market volatility


  • Very low returns
  • No tax benefits
  • Share Certificate Accounts or CDs have substantial penalties for early withdrawals
  • Early redemption of savings bonds sacrifices their maximum value


A trust invests funds on a child’s behalf until he or she reaches a certain age (usually between 18 and 21), when the proceeds transfer to him or her.


  • Total investment flexibility
  • The donor realizes some tax advantages
  • Funds are “hands off” until adulthood


  • When funds transfer to beneficiary, financial aid eligibility can be negatively affected
  • No restrictions on how beneficiary can spend the proceeds
  • Cannot change beneficiary

Keep in mind, this is merely an overview, and a combination of these options may be best for your goals and circumstances. There’s a lot to learn and know—PenAir’s Deposit Accounts Team will be happy to guide you through your college planning process.

Next Steps

When you are ready to help your children prepare for the future, check out the resources available at PenAir:

Meet With a Financial Coach
Get One-on-One Counseling
Financial Fitness Courses
Explore our free resources
Financial Calculators
Crunch the Numbers
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