The average fee for such funds is 1.17 percent. Extra money can be transferred within the family. If a child decides against college or there's money left over after graduation, the money can be saved for graduate school or passed along to someone else in the family. It's even conceivable that a student eventually could pass along money to his or her own children. Still, it might make more sense in some cases to simply withdraw the money and pay the 10 percent penalty that the state levies on any withdrawal not spent for qualifying college bills.
Benefactors retain control.
But grandparents or other benefactors who fund a college savings plan actually can snatch back the money or change the beneficiary right up until the kid is admitted into college. There's still the matter of the 10 percent penalty on earnings, but having control can be comforting to, say, elderly benefactors who worry they might need the money for a medical catastrophe or long-term nursing care. That not only allows the gift to grow sooner, but it also provides shelter from estate taxes. If a donor dies before the five years expires, only a pro-rated portion is shielded from estate tax, but in the meantime the account had a chance to grow. The impact on financial aid is unclear.