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|
(member of family)
(member of family)
|Time/Age Restrictions||Prepaid: Enroll before 11th grade, 10-yr.. benefit period
|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.