At a glance

  • A 529 college savings plan can help you reach your education savings goal.
  • An UGMA/UTMA is a taxable account you can open on behalf of a minor.
  • A taxable account, such as an individual or a joint account, can help you save for other goals like purchasing a house, buying a car, or saving for a vacation.

You hear a lot about saving for retirement these days, but that’s probably not your only investment goal. With the right planning, it’s possible to save for multiple goals.

Before you open a nonretirement account, define your goal(s). Then consider your options. To help, we’ve paired some common investing goals with account options.

Goal: Saving for college

When it comes to saving for college, you have many options. However, for most people, a 529 college savings plan offers a mix of benefits that can help them reach the goal(s) they’ve set out to achieve.


States usually sponsor 529 plans, but you can invest in any state’s plan. And you can use the money you save to pay for school at any eligible educational institution in the U.S. and abroad.
Find a 529 plan


You can use a 529 plan to save for college for a beneficiary—a child, another adult, or even yourself. This account type offers several tax benefits to help you maximize what you save for educational expenses.

  • You can deduct contributions on your state tax return (depending on your state’s rules).
  • Your investment grows tax-free, so you won’t pay any taxes on your earnings until you make a withdrawal.
  • Withdrawals of contributions and earnings used for qualified education expenses aren’t subject to federal taxes and generally aren’t subject to state taxes.
  • Contribution limits are high, and you can make up to 5 years’ worth of contributions at one time without triggering the federal gift tax.

If you save in a 529 plan and don’t end up needing the money for education expenses, you can give the money to a qualified family member without penalty. Or you can simply withdraw the money—just keep in mind that you’ll have to pay taxes and a penalty if you use the money for costs not considered qualified education expenses. The penalty applies only to your earnings, not contributions.*


MORE INFORMATION 
Learn more about 529 plans
College savings options


Goal: Saving for a minor
If you’re saving on behalf of a child, you can open an account under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA).

Anyone can open or contribute to an UGMA or UTMA, but the minor legally owns every contribution (characterized as a gift) to the account, and you can’t change beneficiaries for any reason. You can use an UGMA or UTMA to save for any goal (other than parental obligations such as food, clothing, and shelter).

Account owner considerations
UGMAs and UTMAs are custodial accounts, which means the account owner acts as the custodian of the assets in the account until the minor reaches adulthood. You can contribute as much as you want, but amounts above $15,000 per year ($30,000 for a married couple filing jointly) may incur the federal gift tax. Additionally, contributions aren’t tax-deductible and earnings are subject to federal income or capital gains taxes.

Beneficiary considerations
The beneficiary can use the assets for any purpose—educational or otherwise—upon reaching the age of majority. There’s no penalty if the beneficiary doesn’t use the assets for college.

UGMAs and UTMAs weigh heavily in federal financial aid calculations because the account technically belongs to the beneficiary. This weighting can affect aid decisions significantly.

Goal: Saving for everything else
If you’re saving for a rainy day or a big expense—a house, a car, a vacation—you can open an individual investment account or a joint account.

If you have an individual account, you’re the only account owner. If you open a joint account, you share account ownership with one or more adults.


Interested in an account type we haven’t mentioned?
Learn about the account types we offer

Want a financial advisor to help you make investing decisions?
Learn about Vanguard Personal Advisor Services®


Taxation of investment earnings
Individual and joint accounts are taxable accounts, which means they don’t provide any tax advantages. All contributions are post-tax (meaning you pay income tax on the money you invest), and investment earnings like dividends and capital gains are taxed the year you receive them.

A dividend is an income payment to an investor. You may receive a dividend if you own a stock, bond, mutual fund, or ETF (exchange-traded fund) that produces income.

If your mutual fund or ETF sells underlying investments for more than they originally cost, you may receive a capital gains distribution, which represents profits on an investment. You may also receive a capital gains distribution if you sell shares of your own investments (stocks, bonds, mutual funds, or ETFs) for more than they originally cost.


More information
Individual & joint accounts
Dividends
Capital gains


It’s go time
Here are a few tips for simplifying the process:

What you’ll need

  • About 10 minutes.
  • Your bank account number and your bank’s routing number (if you’re transferring money electronically).
  • Your current employer’s name and address (if you’re employed).

What you’ll need to decide

  • The account type you want to open.
  • How you’ll fund your new account (electronic bank transfer, check, or you can add the money later).
  • What you’d like to do with your dividends and capital gains (you can always change your preference later).

Reinvest dividends and capital gains: Yea or nay?
If you earn dividends or capital gains in an UGMA, UTMA, individual, or joint account, they’ll be subject to annual income taxes, whether you reinvest them or not.

If you reinvest dividends and capital gains in your account, they can generate their own earnings—a principle called compounding.

If you transfer your dividends or capital gains to a money market settlement fund, you can easily withdraw them for immediate use (but you’ll miss out on compounding).


What to expect

  • We’ll review the information you’ve provided and open your account.
  • We’ll automatically direct the money you initially invest to a settlement fund—a money market mutual fund used to pay for and receive proceeds from brokerage transactions. Once we’ve credited your initial investment to your account, you can move some (or all) of your money to a different investment.
  • You can sign up for web access to manage your account online.

More information
Open a new account
What’s a money market settlement fund?


*If you received a tax deduction on your contributions, your state might require you to pay it back if you use the money for nonqualified expenses. Some states also adjust the amount owed for inflation.

Notes:

For more information about any 529 savings plan, contact the plan provider to obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other information; read and consider it carefully before investing. If you are not a taxpayer of the state offering the plan, consider before investing whether your or the designated beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program. Other state benefits may include financial aid, scholarship funds, and protection from creditors. Vanguard Marketing Corporation serves as distributor and underwriter for some 529 plans.

Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.

The services provided to clients who elect to receive ongoing advice will vary based upon the amount of assets in a portfolio. Please review the Form CRS and Vanguard Personal Advisor Services Brochure for important details about the service, including its asset-based service levels and fee breakpoints.

All investing is subject to risk, including the possible loss of the money you invest.

We recommend you consult a qualified tax advisor about your individual situation.