College Savings

Real College Savings
There are many ways to save for your children’s college education. The 529 College Savings Plan and the Coverdell Education Savings Account (ESA) are two of the newer plans.

529 College Savings Plan
These plans provide valuable tax incentives, including the potential for tax-free growth and in some states, like Iowa, a state tax deduction for contributions. Each state offers its own plan, and each state’s plan is available to non-residents. In addition, these plans offer an excellent tool for tax-free wealth transfer. Contributions are made with after-tax dollars and earnings grow free from federal income tax. Earnings on withdrawals used to pay qualified higher education expenses may be excluded from income for federal tax purposes. 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. You can contribute to Coverdell ESA even if you don’t have earned income. 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 tax. The beneficiary may assume control at age of majority.

UGMA/UTMA Account
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.

Real solutions for real college savings. We can show you how.

<< back