when saving for college 529 plans and individual brokerage accounts are two popular options a 529 plan is a tax advantaged investment account designed specifically for education expenses by contrast a brokerage account is a general purpose investment account with no specific tax benefits for education savings 
section 529 plans are sponsored by a state or financial institution and have limited investment options often through a menu of mutual funds or etfs your selection may include age based options that automatically adjust the asset allocation as the beneficiary approaches college age they also offer tax deferred growth and tax free withdrawals for qualified education expenses plan withdrawals are then tax free if used for qualified education expenses such as tuition fees books and room and board some states offer additional tax benefits such as deductions or credits for contributions to in state 529 plans there are no annual contribution limits but there are limits on the total in a given account from 235 000 in georgia and mississippi to 575 000 in california 14meanwhile brokerage accounts offer a wide range of investment options including individual stocks bonds mutual funds and etfs there are no contribution limits but gains and dividends are taxable in the current period there are also no additional benefits to using the proceeds for educational purposes suppose your child does not end up going to college in that case funds in a 529 plan can be transferred to another qualifying family member or used for other education expenses such as apprenticeships graduate school or student loan repayments up to 10 000 nonqualified withdrawals or transfers however are fully taxable and may carry penalties brokerage account funds can be used for any purpose including education without restrictions or penalties 529 plan transferability rulessection 529 plans have specific transferability rules governed by the federal tax code the owner may transfer funds to another 529 plan once per year unless a beneficiary change is involved you are not required to change plans to change beneficiaries you may transfer the plan to another family member who is defined as one of the following you aren t restricted to investing in your own state s 529 plan but doing so may get you a tax break be sure to check out your state s plan first additional tips for 529 plansas with other kinds of investing the earlier you get started the better with a 529 plan your money will have more time to grow and compound the sooner it s opened and funded prepaid tuition plans offer the advantage of locking in current tuition rates potentially saving you money compared with future prices as many schools increase tuition annually if you have leftover funds in a 529 plan such as when the beneficiary receives a significant scholarship or chooses not to go to college you have several options you can change the beneficiary to another qualifying relative keep the current beneficiary in case they decide to pursue higher education later or attend graduate school or use up to 10 000 to repay the original beneficiary s or their siblings federal or private student loans you can also transfer unused funds to a roth ira if your account meets the necessary requirements lastly you can always withdraw the money although you will be subject to taxes and a 10 penalty on the earnings portion of the withdrawal 