Compare College Saving Options
Fidelity Investments

There are a number of investment accounts you can use to save for a child's education. These accounts differ significantly in features and benefits. Four accounts many investors consider are the 529 College Savings Plans, an UGMA/UTMA account (custodial account), the Coverdell Education Savings Account (not offered by Fidelity), and a brokerage account. What are these accounts?

The table below compares 529 Plan accounts to other accounts used for college savings. The features of a 529 Plan Account may make a 529 Plan an ideal option for many families saving for college. The College Planner tool can help you estimate how much you may need to save and how these options compare.

Features 529 Plan UGMA/UTMA (Custodial Account) Coverdell Ed. Savings *Not offered by Fidelity Taxable (Brokerage) account Earnings grow tax-deferred and qualified distributions are federal-tax free1. See Income Tax Benefits Part of investment earnings may be tax-exempt   High gift tax limits. See Gift and Estate Tax Benefits Up to $55K per Beneficiary in a single year ($110K per married couple)3 See details Standard $11K annual ($22K per couple) $2,000 annual account contribution limit   Beneficiary can be changed2. See Ownership and Control     Parent (account owner) maintains control over distribution of assets. See Ownership and Control     Contributions not limited by the income of the parent (account holder). See Ownership and Control   No age limit for beneficiary (child). See Contribution Limits and Other Features     N/A Low impact on financial aid. See Effect on Financial Impact     Choice of investments. See Investment Management A choice of Portfolios managed by professional fund manager Owner researches and chooses investments Owner researches and chooses investments Owner researches and chooses investments

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The information below compares popular College Savings accounts.

Income Tax Benefits

What to look for: Does the account allow you to take federal income-tax free qualified distributions1? Does the account allow you to defer taxes on your earnings until the money is withdrawn? The benefits of tax-deferred investment may give your assets a chance to grow faster than they would in a comparable taxable account.

529 College Savings Plan UGMA/UTMA (Custodial Account) Coverdell Education Savings Account *Not offered by Fidelity   • Tax-deferred growth (no taxes are due on earnings until the funds are withdrawn) • Federal income tax-free qualified distributions1   • No tax deferred growth   • At least part of the investment earnings may be exempt from federal income tax, and some or all may be taxed at the child's generally lower rate4     • Tax-deferred growth • Tax-free qualified distributions

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Gift and Estate Tax Benefits

What to look for: Does the account offer special gift tax benefits?

529 College Savings Plan UGMA/UTMA (Custodial Account) Coverdell Education Savings Account *Not offered by Fidelity   • Individuals can gift up to $55K ($110K per married couple) per Beneficiary in a single year without incurring gift tax3. • Money contributed to a 529 Plan account generally considered removed from the owner's (Participant's) estate3   • Standard $11K annual ($22K/couple) gift tax exclusion applies     • N/A - $2,000 contribution limit per designated beneficiary

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Ownership and Control

What to look for: Who controls the account, the student or the account owner (i.e. parent)? Are there penalties for non-education withdrawals? Can assets be transferred to others in the family?

529 College Savings Plan UGMA/UTMA (Custodial Account) Coverdell Education Savings Account *Not offered by Fidelity   • Revocable gift • Parent (participant) controls the account; child is beneficiary • Can transfer account at any time to benefit another member of designated beneficiary's family2 • May only be used for college related expenses including tuition, books, etc.5 • Can withdraw up to the amount of an awarded scholarship without incurring federal penalty tax. • Can withdraw money anytime. Earnings on nonqualified distributions will be subject to federal income taxes at the distributee's rate as well as a 10% federal penalty tax.   • Irrevocable gifts • Custodian controls the investment until account transfers to the child (minor) at the age of termination (usually 18 or 21) • Cannot be transferred to another child (beneficiary) • Assets must be used for the benefit of the child, but can include non-college expenses • Withdrawals can be made at any time     • Irrevocable gifts • Parent (account owner) controls the account; child is beneficiary • Parent (owner) may transfer account to another family member (beneficiary) • May only be used for education (college or K-12) expenses • Can only withdraw money for the benefit of the child. Non-education uses will incur a penalty

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Effect on Financial Aid

What to look for: Who is considered the owner of the account? Since most federal financial aid formulas consider about 5% of parents' assets and 35% of a child's assets available for college, accounts with assets controlled by the parent, like 529 Plan account, have a lower impact on financial aid. Also see Saving and Financial Aid.

529 College Savings Plan UGMA/UTMA (Custodial Account) Coverdell Education Savings Account *Not offered by Fidelity   • Account is considered asset of the parent (participant), not child (beneficiary) • Lower weighting in financial aid eligibility formulas   • Account is considered asset of the child (minor) • Higher weighting in financial aid eligibility formulas     • Account is considered asset of the (child) minor • Higher weighting in financial aid eligibility formulas

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Investment Management

What to look for: Who makes the investment decisions? Managing your own college savings account allows you more control, but you may also run the risk of being inappropriately diversified. A professionally managed plan, like a 529, may help ease some of the burden of managing the account.

529 College Savings Plan UGMA/UTMA (Custodial Account) Coverdell Education Savings Account *Not offered by Fidelity   • Parent (participant) chooses from portfolios with different exposure to equity and fixed income6, 7, 9 • Assets are professionally managed in portfolio(s) of well-known Fidelity mutual funds6   • Custodian makes the investment decisions until age of account termination of the child (minor) • Account can invest in mutual funds and individual securities, including stocks and bonds     • Parent (custodian) makes the investment decisions • Account can invest in mutual funds and individual securities, including stocks and bonds (as available through the sponsoring institution)

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Contribution Limits and Other Features

What to look for: What are the maximum contribution levels for the account? Who can contribute? What are the fees and minimums for contributing to the account?

529 College Savings Plan UGMA/UTMA (Custodial Account) Coverdell Education Savings Account *Not offered by Fidelity   • Low initial minimum investment. With a Fidelity managed 529 Plan participants can open an account with as little as $50 with automatic contributions • High maximum contribution limits, e.g., $250,000 for the Fidelity managed 529 accounts* • No restriction on contributions based on parents' (participants') income • No age restrictions for beneficiary • Can be opened by anyone — relative or non-relative — on behalf of a child8 • Invest a lump sum and/or monthly contributions9 • Only cash may be invested in the account • One child per account named as beneficiary   • $2500 minimum at Fidelity • No contribution limit • No restriction on contributions based on parents' (participants') income • Beneficiary must be a minor, under 18 or 21 depending on state • Can be opened by anyone-relative or non-relative-on behalf of a minor • Open with cash or appreciated securities • One child per account is named as beneficiary     • Account minimums vary by firm • Maximum $2,000 annual contribution • Restrictions based on income: Phase out AGI over $95,000(single) $190,000 (joint) filer • Beneficiary must be under 18 • Can be opened by anyone — relative or non-relative — on behalf of a child • Contributions can be made to a Coverdell Education Savings Account and 529 plan in the same year • One child per account is named as beneficiary

*Plan contribution caps are for the 2003 calendar year.

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What Are These Accounts?

•		529 College Savings Plans – 529 Plans are federal tax advantaged Plans designed specifically to pay for qualified higher education expenses. Qualified distributions are federal income tax free.
•		Uniform Gifts to Minors/Uniform Transfers to Minors Accounts (UGMA/UTMA) – A custodial account invested in the child's name. Funds can be used for any expense for the benefit of the child, not just school, and the child ultimately controls the account, usually by age of majority (depends on state UGMA/UTMA statute). A portion of withdrawals are taxed at the child's rate. For more information about UGMA/UTMA see Open an Account.
•		Coverdell Education Savings Account – Formerly known as the Education IRA (this type of account is not offered by Fidelity). Offers tax benefits but has a maximum contribution limit of $2,000 per year.
•		The Fidelity Account – A taxable brokerage account offers no special tax benefits but allows flexibility in investments. See The Fidelity Account for more information.

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1 Pursuant to the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"), qualified distributions from a 529 College Savings Plan are federal income tax free. The provisions of EGTRRA will expire on December 31, 2010. Unless the law is extended by Congress and the President, the federal tax treatment of 529 plans will revert to its status prior to January 1, 2002.

2 The new beneficiary of 529 assets must have one of the following relationships to the original beneficiary: 1) a son or daughter; 2) stepson or stepdaughter; 3) brother, sister, stepbrother, or stepsister; 4) father or mother or an ancestor of either; 5) stepfather or stepmother; 6) first cousin 7) son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law and 8) son or daughter of a brother or sister. The spouse of a family member is also considered a family member. However, if the new beneficiary is a member of a younger generation than the previous beneficiary, a federal generation-skipping tax may apply. The tax will apply in the year in which the money is distributed from an account.

3 In order for an accelerated transfer to a 529 Plan (for a given Beneficiary) of $55,000 (or $110,000 combined for spouses who gift split) to result in no Federal transfer tax and no use of any portion of the applicable Federal transfer tax exemption and/or credit amounts, no further annual exclusion gifts and/or generation-skipping transfers to the same beneficiary may be made over the five-year period, and the transfer must be reported as a series of five equal annual transfers on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return. If the donor fails to survive the five-year period, a portion of the transferred amount will be included in the donor's estate for estate tax purposes.

4 For children under age 14, the first $750 of unearned income is generally exempt from federal income tax; the next $750 of unearned income is taxed at the child's applicable ordinary income tax rate; unearned income in excess of $1,500 is taxed at the parents' marginal ordinary income tax rate. For children 14+ years old with no earned income, the first $750 of unearned income is generally exempt from Federal income tax; unearned income in excess of $750 is taxed at the child's applicable ordinary income tax rate. Fidelity does not provide legal or tax advice. Consult your attorney or tax advisor regarding your specific legal or tax situation.

5 College-related expenses refer to qualified higher education expenses as defined in section 529 of the Internal Revenue Code.

6 Portfolios are managed by Strategic Advisers, Inc., a registered investment adviser and Fidelity Investments Company. Pursuant to IRC section 529, a Participant may not have direct or indirect control over the investments in a 529 plan.

7 The UNIQUE College Investing Plan, the U.Fund College Investing Plan, and the Delaware College Investment Plan are managed by Strategic Advisers, Inc., a registered investment adviser and a Fidelity Investments Company. Keep in mind that only Age-Based Portfolios reallocate over time. If you determine in the future, that a different asset allocation would be more appropriate, contributions and earnings may be reallocated among portfolios once every calendar year for a given beneficiary and upon a change of beneficiary of the account.

8 Participant must be 18 years or older and a U.S. citizen or resident alien at the time the account is opened.

9 Periodic investment plans do not guarantee a profit or protect against a loss in a declining market.

The UNIQUE College Investing Plan, U.Fund College Investing Plan, and Delaware College Investment Plan are offered by the State of New Hampshire, Massachusetts Educational Financing Authority, and State of Delaware, respectively and managed by Fidelity Investments. If you are not a New Hampshire, Massachusetts, or Delaware resident, you may want to investigate whether your state offers its residents a plan with alternate tax advantages.

Information provided is general and educational in nature. It is not intended to be, and should not be construed as, legal or tax advice. Fidelity does not provide legal or tax advice. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. Fidelity makes no warranties with regard to the information or results obtained by its use. Fidelity disclaims any liability arising out of your use of, or reliance on, the information. Consult an attorney or tax advisor regarding your specific legal or tax situation.

Units of the Portfolios are municipal securities and may be subject to market volatility and fluctuation.

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