• saving for college, college loans, college financing, college planning

Comparing Your Options

Here's a handy side-by-side comparison of three of the main options available to help you save for your children's college educations:

Year 2011 Rules 529 Plan Coverdell Education Savings Accounts UGMA/UTMA
Federal Income Tax Non-deductible contributions; withdrawn earnings excluded from income to extent of qualified higher education expenses Non-deductible contributions; withdrawn earnings excluded from income to extent of qualified higher education expenses and qualified K-12 expenses before 2013 also excluded Earnings and gains taxed to minor; first $950 of unearned income is tax exempt; unearned income over $1,900 for certain children through age 23 is taxed at parents rate
Federal Gift Tax Treatment Contributions treated as completed gifts; apply $13,000 annual exclusion, or up to $65,000 with 5-year election Contributions treated as completed gifts; apply $13,000 annual exclusion Transfers treated as completed gift; apply $13,000 annual gift exclusion
Federal Estate Tax Treatment Value removed from donor's gross estate; partial inclusion for death during a 5-year election period Value removed from donor's gross estate Value removed from donor's gross estate unless donor remains as custodian
Maximum Investment Established by the program; many in excess of $300,000 per beneficiary $2,000 per beneficiary per year combined from all sources No limit
Qualified Expenses Tuition, fees, books, supplies, equipment, special needs; room and board for minimum half-time students Tuition, fees, books, supplies, equipment, special needs; room and board for minimum half-time students; additional categories of K-12 expenses No restrictions
Able to Change Beneficiary Yes, to another member of the beneficiary's family Yes, to another member of the beneficiary's family No; represents an irrevocable gift to the child
Time/Age Restrictions None unless imposed by the program Contributions before beneficiary reaches age 18; use of account by age 30 Custodianship terminates when minor reaches age established under state law (generally 18 or 21)
Income Restrictions None Ability to contribute phases out for incomes between $190,000 and $220,000 (joint filers) or $95,000 and $110,000 (single) None
Federal Financial Aid Counted as asset of parent if owner is parent or dependent student Counted as asset of parent if owner is parent or dependent student Counted as student's asset
Investments Menu of investment strategies as developed by the program Broad range of securities and certain other investments As permitted under state laws
Use for Nonqualifying Expenses Withdrawn earnings subject to federal tax and 10% penalty Withdrawn earnings subject to federal tax and 10% penalty Funds must be used for benefit of the minor

Source: www.savingforcollege.com

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