More Than One Way to Save for a College Education



Education funding is one of the main topical areas for consideration within the realm of financial planning. For those with children and a desire to provide funding for tuition costs, this area should definitely be a part of their comprehensive financial plan. The current cost of a college education and the projected future costs are quite staggering, not to mention the related costs of books, fees, supplies, equipment and other course materials. Thus, any effort to begin saving as early as possible should help put a dent in the cost. There are many ways to approach college savings and any one or combination of several may be used to accomplish goals in this area.


Named after the Internal Revenue Code section that governs them, these plans have gained widespread popularity since they were first introduced in the late 1980’s. There are two types of 529 plans: prepaid plans and savings plans. Prepaid plans allow for the purchase of tuition credits at today's rates to be used in the future. Therefore, performance is based upon tuition inflation. Prepaid plans may be administered by states or higher education institutions. Michigan was actually one of the first states to introduce a prepaid plan – the Michigan Education Trust (MET), which is still in existence today. Amounts paid toward the purchase of contracts qualify for a tax deduction on the Michigan income tax return. The funds are eligible to be used toward tuition at Michigan public colleges and universities, including community colleges. More information on the MET can be found at its webpage.

Savings plans are different in that all growth is based upon market performance of the underlying investments, which typically consist of mutual funds. Most 529 savings plans offer a variety of age-based asset allocation options where the underlying investments become more conservative as the beneficiary gets closer to college age. Amounts set aside in accounts grow on a tax-deferred basis. Contributions come out tax free. Any earnings on distributions from the account used to pay for qualified higher education expenses will also be free from Federal and state income tax.

Michigan has two college savings plans. One is the Michigan College Savings Program (MESP) which is managed by TIAA-CREF Tuition Financing, Inc. (TFI) and administered by the Michigan Department of Treasury. The other is the Michigan 529 Advisor Plan (MAP) which is also managed by TFI and administered by the Michigan State Treasurer. Nuveen Securities serves as the program distributor. While the plans are similar in the benefits they provide, there are differences in the investment options available and the overall administration of accounts. Michigan allows a tax deduction of up to $10,000 annually on a married-filing-jointly return ($5,000 otherwise) for contributions to MESP or MAP accounts.

If Michigan tax savings benefits are not a high priority, Saving for College provides a list of the top rated 529 plans. In addition to the widely popular 529 plans, there are a number of other strategies that are commonly used:


  • Offer tax-free growth with considerable investment flexibility
  • Withdrawals can be used to pay qualified expenses in elementary and high school as well as college
  • Contribution limits of $2,000 per year per beneficiary

Learn more about Coverdell accounts online.

UGMA (Uniform Gift to Minor’s Act) and UTMA (Uniform Transfer to Minor’s Act) ACCOUNTS

  • Custodial accounts used to hold and protect assets for a minor until they reach the age of majority in their state. Learn more about UGMA and UTMA accounts, their pros and cons and typical investor profile here.

UPROMISE by Sallie Mae

Upromise was launched over two decades ago based on the underlying premise that everyone should be able to afford a college education. This is a college savings service which harnesses the purchasing power of parents, extended family, family, and students to make it easier to pay for college. Members direct their spending to Upromise partners – including more than 950 online stores, 10,000+ restaurants, grocery and drugstore items – and earn money for college. Earnings on accounts can be used toward college tuition, expenses or loans, quickly and easily.

As with most topics today, a wide range of information and resources are available online to educate families and get them started on their education savings plan goals.

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