Education Funding

Education Costs Continue To Increase Year After Year.

There are a variety of ways to save for education expenses.

Some things to consider when choosing the best plan for you and your family are:

  • Can the money be used for elementary school as well as college?
  • Are there limits or income restrictions to contributions?
  • Are there restrictions when I take the money out?
  • Do I have to pay tax on the money?
  • What can I invest in?
  • What happens to the money if my child does not go to college?

Working together, I will help you determine what works best for you and your child/children.

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Types Of College Savings Plans

A 529 college savings plan allows you to save money to be used for higher education expenses.

  • Tax Advantage: Your after-tax dollars grow tax free, and you can use the money tax-free for qualified higher education expenses.
  • Contribution Amount: Annual contribution limits vary by state from $100,000 to $350,000.
  • Financial Control: The parent is the permanent account holder and remains in control of the money for all time.

Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

Coverdell Education Savings Account

Coverdell Education Savings accounts allow the money to be spent for elementary through college education – a much larger range of education expense eligibility than other plans.

  • Tax Advantage: Your after-tax dollars grow tax free, and you can use the money tax free for education expenses.
  • Contribution Amount: Limited $2,000 per year contribution. Depending on your income, you may be limited to a lower amount or none at all.

UGMA Custodial Account

A UGMA (Uniform Gift to Minors Act) is a custodial account that is used to gift assets such as stocks, bonds and other securities, to minors. UGMA accounts do not need to be specifically used for education savings. As such, there are no rules on how to use the money.

  • This type of account is beneficial to the giver for tax and estate reasons (avoiding the estate tax and income on the assets which are paid at the child’s tax rate).
  • The money given is owned by the child and can impact the child’s ability to receive financial aid in the future. When the child reaches age 18 or 25, depending on the state, the account control is given to them, and they can do whatever they want with it, including withdrawing the funds and paying penalties.
  • These accounts are not tax free but do have some tax advantages. Because these accounts are not specific to education, they may not be your best option, especially if your child may need to apply for financial aid.

UTMA Custodial Account

Similar to UGMA accounts, UTMA accounts allow minors to own other types of property such as real estate, fine art and royalties.