College Saving Plans
Comparing Investment Options
| State 529 Plan |
| How can the money be used? |
Pay for qualified expenses at an accredited post-secondary institution in the U.S. |
| Who controls the account? |
Account owner (may be the student). |
| Is there a limit on the income level? |
No |
| Are there contribution limits? |
Generally between
$250,000 and $350,000 per student. |
| How are the earnings taxed? |
There are no taxes on earnings
until the money is withdrawn. And if the withdrawal is for a qualified
expense, it's
free from federal income taxes. There is no federal gift tax on contributions for each student up to
$60,000 per contributor ($120,000 for spousal gifts) in one year if contributor recognizes that gift over five years for tax purposes.
Individual states may have different tax situations, check with your tax
advisor. |
| Are there penalties for early withdrawal? |
Withdrawals are taxed as ordinary income and are subject to penalty. |
| Can the beneficiary be changed? |
Yes. Transfer to another member of the student's family is allowed without penalty. |
| Custodial Accounts (UGMA/UTMA) |
| How can the money be used? |
Typically, money used before the child is of age must be used for the child's benefit. After that, the child controls the money. |
| Who controls the account? |
The money belongs to the minor. Under the UGMA/UTMA a custodian controls the money until the child reaches the age specified by state law. |
| Is there a limit on the income level? |
No |
| Are there contribution limits? |
No lifetime limit |
| How are the earnings taxed? |
Some investment earnings may be exempt from federal income tax, some may be taxed at the child's and/or parent's rate. Contributions larger than $12,000
($24,000 for spousal gifts) a year may be subject to gift tax. State tax varies. |
| Are there penalties for early withdrawal? |
Not applicable |
| Can the beneficiary be changed? |
No. The money belongs to the child. |
| Education Savings
Account |
| How can the money be used? |
Qualified higher education expenses before the student reaches age 30 to avoid penalty. |
| Who controls the account? |
Parent or guardian until the child reaches a set age, unless the parent or guardian elects to retain control. |
| Is there an limit on the income level? |
Yes. Eligibility begins to phase out at $95,000 AGI ($190,000 AGI for taxpayers filing jointly). |
| Are there contribution limits? |
$2,000 per year only until child reaches age 18. |
| How are the earnings taxed? |
Qualified withdrawals are exempt from federal income tax. State tax varies. |
| Are there penalties for early withdrawal? |
Withdrawals on earnings are taxed as ordinary income and 10% penalty may apply. |
| Can the beneficiary be changed? |
Yes. Transfer of the account to another family member is allowed without penalty in some cases. |
| Roth IRA |
| How can the money be used? |
Qualified higher education expenses. |
| Who controls the account? |
Account owner |
| Is there an limit on the income level? |
Yes. Eligibility begins to phase out at
$101,000 AGI ($159,000 AGI for taxpayers filing jointly). |
| Are there contribution limits? |
$5,000 per year
($10,000 for joint returns). |
| How are the earnings taxed? |
Withdrawals of contributions are allowed anytime. Withdrawals of earnings before age 59-1/2 may be subject to taxes and penalty. Qualified education expenses are not subject to penalty. |
| Are there penalties for early withdrawal? |
Withdrawals of earnings are taxed as ordinary income and 10% early withdrawal penalty may apply. |
| Can the beneficiary be changed? |
Not applicable to higher education. |
| Traditional IRA |
| How can the money be used? |
Qualified higher education expenses. |
| Who controls the account? |
Account owner |
| Is there an limit on the income level? |
No income limit for a non-deductible IRA. Eligibility for a deductible IRA begins to phase out at
$53,000 AGI ($85,000 for taxpayers filing jointly). |
| Are there contribution limits? |
$5,000 per year
($10,000 for joint returns). |
| How are the earnings taxed? |
Withdrawals before age 59-1/2 may be subject to taxes and penalty. Qualified education expenses are not subject to penalty. |
| Are there penalties for early withdrawal? |
Withdrawals before age 59-1/2 may be subject to taxes and penalty. |
| Can the beneficiary be changed? |
Not applicable to higher education. |
| Taxable Investment |
| How can the money be used? |
No restrictions |
| Who controls the account? |
Account owner |
| Is there an limit on the income level? |
No |
| Are there contribution limits? |
No restrictions |
| How are the earnings taxed? |
Earnings taxed as capital gains or ordinary income when investments are sold or dividends are paid. |
| Are there penalties for early withdrawal? |
Not applicable |
| Can the beneficiary be changed? |
Not applicable |
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