How Individual Stock Investors Can Save for College
It's possible to find more flexibility by going outside of 529s, but not without trade-offs.
Question: My wife and I are trying to save for college for our two daughters. However, I'm primarily a stock investor and don't like the idea of having to stick with a preset menu of investment options, as I'm required to do with a 529 College Savings plan. Is there an equivalent to IRAs for college savers that would allow me to invest in the securities of my choice?
Answer: For better and for worse, the deck has been stacked in favor of 529 plans for college savers. No other college-savings vehicle offers the same combination of extremely generous contribution limits, tax-free compounding, and tax-free withdrawals when you use the money to pay for qualified college expenses; potential state tax breaks on 529 contributions are the icing on the cake. Although there are still some stinkers among 529 plans, in general the plans have been getting better over the years, as Morningstar's Laura Pavlenko Lutton pointed out in her most recent report about the best 529 plans.