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Strategies to Fund Your Child's College Education: Using Savings and Tax-Advantaged Vehicles

Jessica McCumber, Jorge Ruiz-Menjivar, Martie Gillen, and Sarah M. Ellis


The average annual cost of tuition and fees is $33,480 at private colleges, $9,650 for in-state students at public universities, and $24,930 for out-of-state students at public universities (CollegeBoard, 2019). This brings us to the importance of planning for college education. It is never too soon to explore funding options for college educations, whether your child is a newborn or is in middle school. You are more likely to be prepared to fund your child's education if you start planning earlier.

This publication describes and discusses the following accounts that allow you to pay for college while taking advantage of tax and savings opportunities:

  1. College Savings
  2. UGMA/UTMA Assets
  3. Coverdell Education Savings Accounts (CESA)
  4. Traditional or Roth IRA
  5. The Health and Education Exclusion Trust (HEET)
  6. Crummey Trust
  7. Series EE and Series I Savings Bond

529 College Savings Plans

What is a 529 plan?

  • A 529 plan is a tax-advantaged saving plan (also known as a "Qualified Tuition Plan") that is sponsored by states, state agencies, or educational institutions.
  • After tax money is invested into the plan and withdrawals are used for qualified higher education, expenses are tax-free. Earnings are not subject to federal tax.
  • Two types of 529 plans exist:
    • Prepaid Tuition Plans
    • Education Savings Plans
  • Be sure to explore your options and ask about annual fees and operating costs up front.
  • More than 30 states in the US offer these plans, which vary for each state. You do not have to purchase in your own state, but it may still be the best option.
Table 1. 

Prepaid plan.

Table 2. 

Education savings plans.


UTMA/UGMA Accounts

What do these letters stand for and what do they mean?

  • Uniform Transfer to Minors Act Account and Uniform Gift to Minors Act Account
  • These are custodial accounts that essentially act as a trust for your child. They can contain stocks, bonds, annuities, cash, and other assets reserved for your child until they come of age.
  • Any money in these accounts will be counted as a part of the taxable estate of the custodian before the child reaches the age of trust termination.
  • The income from a custodial account must be reported on the child's tax return at the child's rate as determined by the Kiddie Tax rules.
Table 3. 


Coverdell Education Savings Account (CESA)

What is a CESA?

  • A trust or custodial account that is established to pay for a beneficiary's qualifying education expenses.
  • Recognized as an asset owned by the beneficiary, who can use the principal interest to pay for qualified expenses (tuition, fees, books, supplies, and room and board).
Table 4. 


Traditional or Roth IRA

What is an IRA?

  • IRA stands for individual retirement account. Most people think that these accounts are simply great ways to save for retirement. However, the accounts can also be used to cover educational expenses.
    Table 5. 


The Health and Education Exclusion Trust (HEET)

What is a HEET?

  • A trust established either during an individual's lifetime or by their will upon death to provide payments for medical expenses and educational expenses for their descendants (two or more generations younger).
  • Designed to minimize the generation-skipping tax (GST).
  • This method is appropriate for grandparents seeking to make transfers to their grandchildren.
Table 6. 


Crummey Trust

What is a Crummey trust?

  • A trust established to gift money to a minor while maintaining a certain degree of control over how the assets are distributed.
Table 7. 


Series EE and Series I Savings Bond

What are Series EE and Series I Savings Bonds?

  • Two series of savings bonds currently offered by the US Treasury.
  • Can still purchase paper Series I bond with a tax refund at face value; paper Series EE bonds are no longer available.
  • Both can be purchased in electronic format for face value for any value over $25 to the penny (e.g., a $50 bond would cost you $50).
  • The savings bond education tax exclusion permits qualified taxpayers to leave out partial or full interest paid upon redeeming the bonds (purchased after 1989) from their gross income, when the bond owner pays for qualified educational expenses within the same tax year in which the bonds were redeemed.
Table 8. 



CollegeBoard. (2019). Average Published Undergraduate Charges by Sector and by Carnegie Classification, 2018–19. Retrieved from

Gutter, M., & Gillen, M. (2015). Education savings vehicles. In C. R. Chaffin (Ed.), Financial Planning Competency Handbook (pp. 145–152). Hoboken, NJ: John Wiley & Sons, Inc.

Publication #FCS3353

Date: 7/1/2019

Related Experts

Ruiz-Menjivar, Jorge H.

University of Florida

Gillen, Martie

University of Florida

Ellis, Sarah M.

University of Florida

  • Critical Issue: Families and Communities

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Fact Sheet

About this Publication

This document is FCS3353, one of a series of the Department of Family, Youth and Community Sciences, UF/IFAS Extension. Original publication date June 2019. Visit the EDIS website at for the currently supported version of this publication.

About the Authors

Jessica McCumber, undergraduate student; Jorge Ruiz-Menjivar, assistant professor; Martie Gillen, associate professor, Department of Family, Youth and Community Sciences; and Sarah M. Ellis, Extension agent I, UF/IFAS Extension Citrus County; UF/IFAS Extension, Gainesville, FL 32611.


  • Jorge Ruiz-Menjivar