College Savings Plans
There are many ways to save for your children’s college education. The 529 College Savings Plans, Coverdell Education Savings Account (ESA) and UGMA/UTMA Accounts are all great ways to save for educational expenses.
529 College Savings Plans
A 529 Plan is a tax-advantaged investment plan designed to encourage saving for the future higher education expenses of a designated beneficiary. Each state offers its own plan, and each state’s plan is available to non-residents. These plans provide valuable tax incentives, including the potential for tax-free growth and with some plans, like the Iowa 529, a state tax deduction for contributions. These plans offer an excellent tool for tax-free wealth transfer as anyone can establish and contribute to a 529 plan on behalf of a designated beneficiary (typically one’s child or grandchild). Contributions are made with after-tax dollars and earnings grow free from federal income tax. Qualified withdrawals are free from federal taxes. In addition, the owner maintains control of the assets.
Coverdell Education Savings Account (ESA)
This is a savings account that is set up to pay for qualified education expenses of a designated beneficiary, a child or a grandchild. Contributions are made with after-tax dollars and are limited to $2,000 per year per child until the child reaches the age of 18. Contributions are phased out for higher income levels. Earnings grow tax-free. They can be used to pay not only higher education expenses, but for expenses for kindergarten through high school as well. Qualified withdrawals are free from federal income tax. The beneficiary may assume control at age of majority.
You can save for a child’s college education under the Uniform Gifts to Minor Act (UGMA) and/or Uniform Transfers to Minors Act (UTMA) which offer a means of transferring ownership of property to children. Both are custodial accounts: the child is the account owner, but the parent (or other adult) is named custodian. The custodian controls the account until the child is no longer a minor. At that point, the custodial relationship ends and the child controls the account. UGMA/UTMA accounts can be rolled over into 529 plan accounts, which offer more generous tax benefits and account ownership flexibility.
For more information on College Savings Plans
, contact Tory Meiborg
or Donna Sanders
. They can be reached in Cedar Rapids at (319) 364-3041 or Iowa City at (319) 339-4884. Additionally, feel free to use our Contact Us