Planning for college: Investment accounts to help you pay for education

SAVING FOR COLLEGE often starts with choosing one or more accounts designed to help a family set money aside for education. These accounts can help provide flexibility, potential tax advantages and the chance for savings to grow over time, which can potentially reduce the need for student loans and help the family manage rising education costs.

Why saving for college early matters

A college education can provide long-term financial and career benefits, but the cost of college continues to rise. Many families find themselves needing to balance competing priorities like saving for retirement and managing the costs of homeownership while planning for education expenses. “The key to keeping long-term debt to a minimum is to start saving for education as early as you can,” says Thomas Psaltis, director of Education Savings Programs at Bank of America. “Ideally, you want your contributions to pay for a larger portion of the costs.” Starting to save and invest early allows contributions to grow and compound over time and may reduce the total amount that needs to be borrowed.

How to choose a college savings plan

As you compare savings options, think about what matters most for your family, and consider:

• How much flexibility you want in how the money can be used
• Who controls the account, and any age restrictions
• Whether there are tax benefits
• What investment choices are available
• How the plan fits with your other financial goals
   

A financial advisor can help align college savings with other priorities, such as retirement or wealth transfer. Use the guide below to compare your options, and then begin a conversation with your advisor about how you can fit college savings into your family’s overall financial plan.

Next steps: Building your education savings strategy

To get started:

• Estimate what future education costs might look like
• Choose one or more savings options that fit your needs
• Contribute regularly, even if you start small
• Review your plan as your goals and circumstances change
   

Final stretch? Ways to fill in the gaps

Many families use more than one source to pay for college. On average, parents’ and students’ savings and income cover only 48% of college costs.¹ Scholarships and grants cover another 27%, loans cover nearly 23%, and friends and relatives may help with the rest. That means that in the final run-up to college, you’ll likely want to look into one or more of these options:

• Financial aid. Because financial aid, which often comes in the form of student loans, isn’t based on income alone, “everyone should apply for federal student loans and grants, even if you think you won’t qualify,” Psaltis says. Start by filling out the Free Application for Federal Student Aid, which you can do beginning in the first half of your child’s senior year in high school.
  
  
• Student loans. If you need to borrow, consider using federal student direct subsidized loans first as they generally have lower interest rates and more favorable repayment terms.
  
  
• Other borrowing options. Alternatives to student loans include a line of credit backed by your investments. With Bank of America’s Loan Management Account®,⁴ for example, “you can borrow against your account without disrupting your long-term investment plan, and your interest rate may be lower than most other borrowing options,” says Patrick Bitter, a credit and banking product executive at Bank of America. Keep in mind that if the value of your investments drops sharply, you may have to repay the loan sooner than planned, deposit more money into your account or sell some of your stocks or bonds, he adds.
   

“Your financial advisor can help you evaluate all of these options and determine which might make the most sense for you,” says Psaltis. And planning ahead is key. One more tip: “Involve your child in the process,” he adds. “It’s a great way to kick-start their financial education, and it will help them understand the financial impact of considering one school over another.”

¹ Sallie Mae and Ipsos, “How America Pays for College 2025,” August 2025.

² To be eligible for favorable tax treatment afforded to the earnings portion of a withdrawal from a 529 account, such withdrawal must be used for “qualified higher education expenses,” as defined in the Internal Revenue Code. The earnings portion of a withdrawal that is not used for such expenses is subject to federal income tax and may be subject to a 10% additional federal tax, as well as applicable state and local income taxes. The additional federal tax is waived under certain circumstances. State tax treatment for expenses other than qualified higher education expenses may vary. See 529 plan’s program disclosure for more information.

³ In 2026, you can contribute up to the annual gifting limit — $19,000 ($38,000 for married couples) — before you must report the 529 contributions to the IRS and they are subject to a federal gift tax or lifetime federal gift tax exemption reduction. Under a special five-year gifting provision, you may contribute up to $95,000 to a single beneficiary’s 529 account in one year ($190,000 for married couples electing to split gifts).

Contributions during 2026 between $19,000 and $95,000 ($38,000 and $190,000 for married couples electing to split gifts) made in one year can be prorated over a five-year period without subjecting the donor to federal gift tax or reducing your federal unified estate and gift tax credit by filing an election on a timely filed federal gift tax return, Form 709. If you contribute less than the $95,000 maximum ($190,000 for married couples electing to split gifts), additional contributions can be made without you being subject to federal gift tax, up to a prorated level of $19,000 ($38,000 for married couples electing to split gifts) per year. Gift taxation or the use of the account holder’s federal gift tax exemption may result if a contribution, combined with all other gifts qualifying for the annual gift tax exclusion in the year of contribution, exceeds the available annual federal gift tax exclusion amount remaining for a given beneficiary in the year of contribution. For contributions between $19,000 and $95,000 ($38,000 and $190,000 for married couples electing to split gifts) made in one taxable year, if the account owner dies before the end of the five-year period, a prorated portion of the contribution may be included in the account owner’s estate for federal estate tax purposes.

⁴ The Loan Management Account® (LMA® account) is a demand line of credit provided by Bank of America, N.A., Member FDIC. Equal Opportunity Lender. The LMA account requires a brokerage account at Merrill Lynch, Pierce, Fenner & Smith Incorporated and sufficient eligible 300 collateral to support a minimum credit facility size of $100,000. All securities are subject to credit approval and Bank of America, N.A. may change its collateral maintenance requirements at any time. Securities-based financing involves special risks and is not for everyone. When considering a securities-based loan, consideration should be given to individual requirements, portfolio composition and risk tolerance, as well as capital gains, portfolio performance expectations and investment time horizon. The securities or other assets in any collateral account may be sold to meet a collateral call without notice to the client, the client is not entitled to an extension of time on the collateral call, and the client is not entitled to choose which securities or other assets will be sold. The client can lose more funds than deposited in such collateral account. The LMA account is uncommitted and Bank of America, N.A. may demand full repayment at any time. A complete description of the loan terms can be found within the LMA agreement. Clients should consult their own independent tax and legal advisors. Some restrictions may apply to purpose loans, and not all managed accounts are eligible as collateral. All applications for LMA accounts are subject to approval by Bank of America, N.A. For fixed-rate and term advances, principal payments made prior to the due date will be subject to a breakage fee.

Merrill, its affiliates, and financial advisors do not provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.