Saving For College: Understanding 529s Versus UTMAs

I get approached by many people with small children and newborns who ask, “what should I be doing to save for college?” At the end of the day, it’s a more complicated question than you think. If I had a crystal ball and could see exactly who your child would grow up to be, what they’d want to do with their life, the appropriate schooling level, which schools, and what the market will do between now and when they graduate, I would be able to give an answer with certainty. As things are, we must plan and make some assumptions.

According to the Education Data Initiative, average costs of college are $36,436 per year in the United States, including all expenses. What’s the problem with planning from this data? Depending on the funding vehicle you use, there can be consequences that can come with both undershooting the actual costs and overshooting the costs. While there are many investment vehicles you can use for college funding, I will only be focusing on two common ones today. This is a discussion of using a 529 College Savings Plan versus a Uniform Transfers to Minors Account for college funding, pros and cons, and when each may be appropriate.