Available College Savings Plans

Do your research when you're deciding on a college savings plan — not all savings plans are created equal. What works best for your neighbor may not be the best choice for you. Listed below are some college savings plans and the major differences that you'll find among them:

Savings Vehicle	Tax Issues	Possible Contributors	Possible Uses	Taxed Individual (if Applicable)
529 plans	No tax paid on interest earned until distributions are made. Currently, distributions used for qualified educational expenses are tax-exempt.	No relationship or income-limitation test.	Any expenses you choose. However, distributions used to pay for nonqualified expenses are subject to income tax on the earnings portion, plus a 10% penalty.	Designated beneficiary.
Coverdell accounts	No tax paid on interest earned until distributions are made. Currently, distributions used for qualified educational expenses are tax-exempt.	No relationship test. Must satisfy income-limitation test.	Any expenses you choose. However, distributions used to pay for nonqualified expenses are subject to income tax on the earnings portion, plus a 10% penalty.	Designated beneficiary.
Series EE and Series II savings bonds	No tax paid on interest earned if redeemed bonds are used for qualified educational expenses.	Must satisfy relationship and income-limitation tests to qualify for tax-free treatment of interest upon redemption of bonds.	Any expenses you choose. However, only the portion used for qualified educational expenses is tax-free.	Bond owner.
Personal investment accounts	Tax paid yearly on income earned within the account. No additional tax assessed when you take distributions for any reason.	You contribute to your own account or may make gifts into someone else's.	All expenses.	Account owner.
Trust accounts	Tax paid yearly on income earned within the account. No additional tax assessed when you take distributions for any reason.	Trust grantor (the donor) only.	All expenses.	In years in which distributions are made, person to whom the distribution is made. In all other years, the trust pays the tax.
Retirement accounts	Tax deferred until you take distributions. Early distributions may also be subject to an additional penalty.	Account owner only.	Any expenses you choose. However, distributions used to pay for nonqualified expenses are subject to income tax on the earnings portion, plus a 10% penalty.	Account owner.
Home equity	No tax owed if you refinance your house and use some or all of your equity to pay for college expenses. If you sell your house, you may be liable for a capital gains tax in some situations.	Anyone may buy you a house or make payments against an existing mortgage; generally, only the homeowner actually does.	All expenses.	Homeowner.

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