The younger your child is, the more difficult it can be to fully understand the need to develop an education funding plan. But with education expenses often starting as early as elementary school, it’s clear that the sooner you start saving, the better. Even if you feel like you’ve already fallen behind, it’s not too late — what you do today can have a great impact on your child’s education.
According to the College Board, the average cost for tuition, fees, and room and board for a public university in 2014-2015 is $18,940; the same expenses for a private university are $42,420.*
Too often, these rising college costs stand between your children and their dreams for the future. Even if they excel in school, your children still might not be able to attend the college of their choice. The lack of an education funding plan often forces parents and students to make a difficult choice — take on the burden of student loan debt or avoid college altogether.
The chart below compares some of the most widely used education funding alternatives. Your Financial Advisor can help you decide which ones work for your unique situation.
|Education Funding Product Features||529 College Savings Plans1||Coverdell Education Savings Account2||Custodial Accounts (UGMA/UTMA)3||Parent-Owned Taxable Brokerage Accounts|
|Income limitations for participation||None||Single filers: $95,000- $110,000; joint filers: $190,000-$220,000||None||None|
|Control of the account||Account owner||Custodian controls until beneficiary turns 30||Custodian controls until age of termination||Account owner|
|Annual contribution limits||$14,000 per beneficiary ($28,000 for a married couple)4||$2,000 per designated beneficiary younger than 18||$14,000 ($28,000 for couple) without being subject to federal gift tax treatment||None|
|Current taxation of earnings||None||If child is younger than 19, or a full-time student under age 24, the “kiddie tax” applies||Taxed at the owner’s rate|
|Qualified distributions are federal-tax-free||Yes||Yes||N/A||N/A|
|May have state tax benefits||Yes||Yes||No||No|
|Taxation/penalty for withdrawals for nonqualified expenses||Earnings portion of nonqualified withdrawals is taxed as ordinary income to the plan participant and may be subject to a federally mandated 10% penalty (earnings only). Penalty-free withdrawals are permitted in the event of scholarship or death or disability of the beneficiary.||N/A||N/A|
|Investment alternatives||A choice of portfolios managed by professional fund managers||Owner (custodian) chooses investments|
|Can be used for college expenses||Yes||Yes||Yes||Yes|
|Can be used for primary and secondary school expenses||No||Yes||Yes||Yes|
|Can change beneficiaries||Yes||Yes||No||N/A|