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How does a 529 Plan compare to other college savings vehicles?

Savings vehicles like 529 Plans offer distinct advantages over traditional checking or savings accounts, namely the opportunity for tax-free earnings. Here is how 529 Plans compare to other college savings vehicles.

529 Plans Coverdell Education Savings Accounts Qualifying U.S. Savings Bonds UGMA/UTMA
Federal Income Tax Contributions made with after-tax funds; earnings excluded from income for federal tax purposes when used for qualified college expenses Contributions made with after-tax funds; earnings excluded from income for federal tax purposes when used for qualified college and K-12 expenses Certain “EE” and “I” bonds may be redeemed tax-free for college expenses First $1,050 is tax-exempt; unearned income over $2,100 for certain children under age 24 is taxed at parent rate
Federal Gift Tax Treatment Contributions treated as gifts; annual and 5-yr… federal exclusions apply Contributions treated as gifts; annual federal exclusions apply Not considered a gift Contributions treated as gifts; annual federal exclusions apply
Federal Estate Tax Treatment Value excluded from contributor’s estate; included for death during 5-yr.. election period Value excluded from contributor’s estate Value included in owner’s estate Value excluded from contributor’s estate
Maximum Investment $418,000 per Beneficiary in Florida $2,000 per Beneficiary per year (all sources) $10,000 face value per year, per owner, per type of bond No limit
Qualified Expenses Tuition, fees, books, computers and related equipment, supplies, 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 Tuition and fees No restrictions
Change Beneficiary Yes
(member of family)
Yes
(member of family)
Not applicable Prohibited
Time/Age Restrictions Prepaid: Enroll before 11th grade, 10-yr.. benefit period
Savings: None
Contributions before Beneficiary reaches age 18; use of account by age 30 Bond purchaser must be at least 24 years old at time of bond issuance Custodianship terminates when minor becomes adult
Income Restrictions None Contributions limited for incomes approx. $100K and above Interest exclusion for incomes approx. $77K and below None
Federal Financial Aid Asset of parent if owner is parent or dependent student Asset of parent if owner is parent or dependent student Counted as asset of bond owner Counted as asset of the student
Use for Non-Qualifying Expenses Withdrawn earnings subject to federal tax and 10% penalty Withdrawn earnings subject to federal tax and 10% penalty No penalty; interest on redeemed bonds included as income Funds must be used for benefit of the minor

For specific information about your situation and options, please consult an investment adviser or certified public accountant.