Jennifer Ma, TIAA-CREF Institute
Douglas Fore, TIAA-CREF Institute
January 2002 | Issue # 70
The Economic Growth and Tax Reconciliation Act of 2001, signed into law in June 2001, made substantial changes to the rules governing 529 plans and the Education IRA (renamed Coverdell Education Savings Account). In this article, we provide an updated comparison of 529 plans with other options. In addition to taking into account the new tax law changes, we discuss in detail the impact of saving on financial aid eligibility. We also use a "Monte Carlo" approach to simulate asset accumulations in a 529 plan, balanced mutual funds, Coverdell Education Savings Accounts, and Series-I savings bonds. Results show that 529 plans have definite advantages over other investment strategies with similar risk characteristics.