College Savings Options
Submitted by Southwest Investment Advisors on February 16th, 2018
YEAR 2019 RULES |
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529 Plan |
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Coverdell Education Savings Accounts |
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UGMA/UTMA |
Federal Income Tax |
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Non-deductible contributions; withdrawn earnings excluded from income to extent of qualified higher education expenses |
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Non-deductible contributions; withdrawn earnings excluded from income to extent of qualified higher education expenses and qualified K-12 expenses also excluded |
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Earnings and gains taxed to minor; first $1,050 of unearned income is tax exempt; unearned income over $2,100 for certain children under age 24 is taxed at rates for estates and trusts |
Federal Gift Tax Treatment |
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Contributions treated as completed gifts; apply $15,000 annual exclusion, or up to $75,000 with 5-year election |
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Contributions treated as completed gifts; apply $15,000 annual exclusion |
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Transfers treated as completed gift; apply $15,000 annual gift exclusion |
Federal Estate Tax Treatment |
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Value removed from donor’s gross estate; partial inclusion for death during a 5-year election period |
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Value removed from donor’s gross estate |
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Value removed from donor’s gross estate unless donor remains as custodian |
Maximum Investment |
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Established by the program; many in excess of $300,000 per beneficiary |
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$2,000 per beneficiary per year combined from all sources |
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No limit |
Qualified Expenses |
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Tuition, fees, books, computers and related equipment, supplies, special needs and some room and board at eligible colleges and universities; up to $10,000 in tuition expenses at private, public and religious K-12 schools |
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Tuition, fees, books, supplies, equipment, special needs; room and board for minimum half-time students; additional categories of K-12 expenses |
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No restrictions |
Able to Change Beneficiary |
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Yes, to another member of the beneficiary’s family |
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Yes, to another member of the beneficiary’s family |
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No; represents an irrevocable gift to the child |
Time/Age Restrictions |
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None unless imposed by the program |
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Contributions before beneficiary reaches age 18; use of account by age 30 |
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Custodianship terminates when minor reaches age established under state law (generally 18 or 21) |
Income Restrictions |
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None |
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Ability to contribute phases out for incomes between $190,000 and $220,000 (joint filers) or $95,000 and $110,000 (single) |
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None |
Federal Financial Aid |
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Counted as asset of parent if owner is parent or dependent student |
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Counted as asset of parent if owner is parent or dependent student |
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Counted as student’s asset |
Investments |
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Menu of investment strategies as developed by the program |
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Broad range of securities and certain other investments |
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As permitted under state laws |
Use for Nonqualifying Expenses |
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Withdrawn earnings subject to federal tax and 10% penalty |
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Withdrawn earnings subject to federal tax and 10% penalty |
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Funds must be used for benefit of the minor |
From Savingforcollege.com
To determine which investments may be appropriate for you, consult with your financial professional.
Neither Southwest Investment Advisors nor LPL provide tax advice.
An investor should carefully consider the investment objectives, risks, charges and expenses associated with 529 plans before investing. More information is available in the issuer’s official statement which can be obtained from your financial professional. The official statement should be read carefully before investing.
Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents and taxpayers. The investments inside a 529 plan may fluctuate with changes in market conditions. When redeemed shares may be worth more or less than their original value. Nonqualified withdrawals do not enjoy tax-favored treatment. The earnings part of a nonqualified withdrawal will be subject to federal income tax, and the tax will typically be assessed at the account owner’s rate, not at the beneficiary’s rate. Plus, the earnings part of a nonqualified withdrawal will be subject to a 10 percent federal penalty, and possibly a state penalty too.
This report is prepared for general circulation and is for informational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or service. Market prices and other data may be obtained from outside sources and is not warranted as to completeness or accuracy.