Products: Education Savings Products: College Savings Plans
Section 529 Plans impose few limits on contributions and none on income, and offer tax-free growth. Up to $13,000 ($26,000 for married couples) can be contributed each year without gift-tax consequences. The amount you may contribute is virtually unlimited and depends on the plan. Contact us for specific details.
Withdrawals for qualified higher education expenses — tuition, books, and room and board — are tax-free. You can decide when withdrawals are made, change the beneficiary at any time, and change investments one time per year or when changing beneficiaries. Non-qualified withdrawls are subject to ordinary income tax and may be accessed a 10% tax penalty. Non-qualified withdrawls are withdrawls taken for use other than higher education expenses. Tax issues related to Section 529 plans can be complicated. There are many plans to choose from; contact us for advice.
Coverdell Education Savings Accounts (ESAs), formerly called Education IRAs, allow contributions of as much as $2,000 a year for each eligible child providing you meet certain income guidelines. Your ability to contribute is phased out for individuals with incomes between $95,000 and $110,000 and for married couples with incomes between $190,000 and $220,000. You may make a full contribution if your income is less than $95,000. Remember, the beneficiary must be under the age of 18 at the time of contribution.
Earnings on ESAs can grow free from federal tax. Contributions are nondeductible, however all withdrawals, including investment earnings, are income-tax free if used for qualifying education expenses for elementary, secondary, and post-secondary education. Qualified expenses include tuition, tutoring, books, and computer equipment and technology including expenses for Internet access — a 10% penalty applies for non-qualified withdrawals and taxes may be due as well. There are many investment options for ESA contributions. Contact us to learn more.
If you do not qualify for an ESA and/or would like to contribute more than $2,000 per year per beneficiary, Section 529 Plans are available.
Uniform Trust to Minor Accounts (UTMA) are another way to save money for education or any other expenses. UTMAs are custodial accounts in which monies are invested on behalf of a minor for any future purpose. A portion of the earnings on the account are taxable at the minor’s and parent’s tax rate. (Please consult with your tax advisor for specific tax information and recommendations). The minor owns the account and ownership may not be changed. You must turn the assets over to the child when he/she reaches age 21. There are many investment options for UTMAs. Contact us for more information.
For an easy comparison of 529 Plans, ESA plans, and UTMAs, please see our Saving for Education Expenses Chart.
The U.S. Department of Education web site provides helpful information about financial advice including loans.
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