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College Savings Plans
The 529 Plan is specifically for college savings and cannot be used towards pre-college tuition. The
Coverdale Education IRA is an education savings plan which may be applied towards any pre-college
tuition expenses. Below is a comparison chart of the various types of plans that are available for
education purposes. FB Financial Services Investment officers can help you determine the plan that best
fits your situation.
| Income Limits |
| 529 College Savings |
No limits. Anyone can contribute. |
| Coverdell Education Savings Account |
Ability to contribute is phased out for married couples with incomes between $190,000 and $220,000 and for individuals with incomes between $95,000 and $110,000.* |
| UGMA/UTMA |
None |
| Parents' investment account |
None |
| Contribution Limits |
| 529 College Savings |
$250,000 per beneficiary. |
| Coverdell Education Savings Account |
$2,000 per year per beneficiary, also called the recipient.* |
| UGMA/UTMA |
None |
| Parents' investment account |
None |
| Income Tax Treatment |
| 529 College Savings |
Earnings can grow free from federal tax, and withdrawals for qualified higher education expenses are free from federal tax.* |
| Coverdell Education Savings Account |
Earnings can grow free from tax, and withdrawals for qualified elementary, secondary1 and higher education expenses are free from federal tax. |
| UGMA/UTMA |
For children under 14, the first $800 of earnings is tax-free. Earnings between $800 and $1,600 are taxed at the child's rate; earnings above $1,600 are taxed at the parents' rate. All earnings for children over 14 are taxed at the child's rate. |
| Parents' investment account |
Dividends and interest are taxed to owner at applicable rates, and capital gains are taxed at capital gain rates. |
| Control |
| 529 College Savings |
Owner maintains control of the assets, decides when withdrawals will be made and can change the beneficiary. |
| Coverdell Education Savings Account |
Beneficiary, also called the recipient, may assume control at age of majority, 18 or 21 in most states. |
| UGMA/UTMA |
Beneficiary assumes control at age of majority, 18 or 21 in most states. |
| Parents' investment account |
Owner maintains control of the assets and decides when withdrawals will be made |
| Investment Flexibility |
| 529 College Savings |
You can move your assets among funds once each calendar year or when you change the benefi |
| Coverdell Education Savings Account |
You can move your assets as often as you want. |
| UGMA/UTMA |
You can move your assets as often as you want, but each transfer usually is a taxable event. |
| Parents' investment account |
You can move your assets as often as you want, but each transfer usually is a taxable event. |
| Uses |
| 529 College Savings |
Higher education expenses, such as tuition, books and room and board. |
| Coverdell Education Savings Account |
Educational expenses, including tuition, books and room and board for kindergarten through high school,* college and graduate school. |
| UGMA/UTMA |
Any use that benefits the child. |
| Parents' investment account |
Any use. |
| American Funds Investment Options |
| 529 College Savings |
CollegeAmerica offers 21 American Funds in five share classes. |
| Coverdell Education Savings Account |
22 American Funds. |
| UGMA/UTMA |
All 29 American Funds. |
| Parents' investment account |
All 29 American Funds. |
| Ability to Change Beneficiaries |
| 529 College Savings |
Yes |
| Coverdell Education Savings Account |
Yes |
| UGMA/UTMA |
No |
| Parents' investment account |
Not applicable |
| Penalties on Non-qualified Withdrawals |
| 529 College Savings |
Ordinary income taxes and a 10% federal tax penalty on earnings. |
| Coverdell Education Savings Account |
Ordinary income taxes and a 10% federal tax penalty on earnings. |
| UGMA/UTMA |
Not applicable |
| Parents' investment account |
Not applicable |
| Contribution Deductible from State Taxes |
| 529 College Savings |
Only to the residents of the sponsoring plan. |
| Coverdell Education Savings Account |
No |
| UGMA/UTMA |
No |
| Parents' investment account |
No |
* This tax benefit is effective through 2010 unless extended by Congress. Tax issues for 529 college
savings plans can be complicated. Talk to your tax adviser.
Benefits of 529 College Savings Plan:
Tax-free Growth
- Investments grow tax free for as long as the money stays in the plan
- Qualified expenses are tax free at the federal level
Donor Control/Flexibility
- Donor stays in control of the account
- Child has no rights to the funds
- More control and flexibility than UTMA/UGMA and Coverdell
- No income limits, no age limits, and the ability to change the beneficiary
Operational Ease
- Very easy, hands-off way to save for college with age-based portfolios and static portfolios
- Professionally managed plan assets
Estate Tax Benefits/Creating Education Legacy
- Qualifies for the $11,000 annual gift tax exclusion ($22,000 for married couples)
- One-time contribution of $55,000 can be stretched over a five-calendar-year period ($110,000 for married couples)
Note: Lump sum contribution of $55,000 for singles and $110,000 for married couples restricts contributions for five years after the contribution.
- Assets leave your estate but don't leave your control
Considerations when Deciding on a College Savings Plan
Take advantage of tax benefits
The tax benefits offered by college savings vehicles can greatly affect how much you accumulate for a
child's college education. Tax-free status is a powerful benefit and can make a difference in the value
of an account -- enabling your college savings dollars to be used towards college education expenses.
Know how flexible and accessible the assets are
What happens to your college savings if their situation changes, they have a financial emergency, or if
your child receives a scholarship? The answers vary based on the college savings vehicle they chose.
Ownership, control of assets, and account flexibility are important factors that should weigh in to the
decision-making process. College savings plans also vary in the treatment of non-qualified withdrawals,
from not allowing early access to complete penalty-free liquidity.
Understand financial aid implications
Many families are afraid to save for college, thinking it will hurt their chances for financial assistance.
It is income, not savings, is the most important factor in determining who qualifies for educational grants
and/or loans. Since parent income and the saved assets of both child and parent are important factors in
determining financial aid, it's important to consider how the college savings vehicle chosen affects financial aid.
Consider income restrictions, contribution limits, and other factors
With the rising cost of college, it's important to start investing early and regularly to prepare financially
for college. High contribution limits allow clients to save greater amounts towards college expenses, and
income restrictions often dictate who can use each plan.
Our Investment Officers will explain the various plans and help you choose the right one for your family.
Email: fbfin.serv@uvestmail.com
Call: (800) 400-7067
Under a "sunset provision", the tax exemption for earnings on qualified withdrawals is scheduled to expire on
December 31, 2010, unless extended by Congress. As with all tax-related decisions, consult your tax advisor.
Withdrawals for expenses other than qualified education expenses are subject to income tax and an additional
10% penalty on earnings. You should consider a 529 Plan's fees and expenses such as administrative fees,
enrollment fees, annual maintenance fees, sales charges, and underlying fund expenses, which will fluctuate
depending on the 529 Plan invested in and the investments chosen within the plan. You should also consider the
inherent risks associated with investing in 529 Plans such as investment return and principal fluctuation,
which will also vary based on the investments made within the plan. This and other important information is
contained in the issuer's official statement. The official statement should be read carefully before investing. Securities are offered by, and Investment Consultants are registered with UVEST Financial Services,
Member FINRA www.finra.org /SIPC www.sipc.org. UVEST and FB Financial Services are independent entities.
| Not FDIC Insured |
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Not Bank Guaranteed |
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May Lose Value |
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| Not Guaranteed by any Government Agency |
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Not a Bank Deposit |
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