What options are available to save for college or other educational needs?

Parents and grandparents today have several choices when it comes to providing educational funding for their children and grandchildren. Most states, including Florida, offer 529 plans and many offer a variation on the 529 plan with pre-paid tuition. Other options include Coverdell Education Savings Accounts (CESA, also known as an education IRA), and custodial accounts. Custodial accounts include Uniform Gifts to Minors Act accounts (UGMA) and Uniform Transfers to Minors Act accounts (UTMA).

Each of the different account options has its own unique set of pros and cons and deciding on the best way to save for college can be difficult. Here are some factors to consider:

• How much can you contribute to the account per year?
• Are your contributions tax-free or tax-deferred?
• How are your contributions invested?
• Are there any account administrative fees?
• What can the money in the account be used to pay for?
• What happens to the money in the account if the child does not attend college?
• Who owns the account, you or the beneficiary? Account ownership can impact your estate, student financial aid applications, and who controls the funds in the account and how they are spent

Which is the right plan for you?

Your Financial Advisor at Allen & Company can help you sort through the information and pick a plan or combination of plans that is just right. So that you can make sure that your child or grandchild has access to a quality education.
 
 
529 Disclaimer

Before you invest in a 529 plan, request an official statement and read it carefully.  The official statement contains more complete information, including investment objectives, charges, expenses and risks of investing in the 529 plan, which you should consider carefully before investing.

You should also consider whether your home state or your beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s 529 plan.

Any information presented about tax considerations affecting client financial transactions or arrangements is not intended as tax advice and should not be relied upon for the purpose of avoiding any tax penalties. Clients should review any planned financial transactions or arrangements that may have tax, accounting or legal implications with their personal professional advisors.

To be eligible for the favorable tax treatment afforded to any earnings portion of withdrawals from Section 529 accounts, withdrawals must be for “qualified higher education expenses,” as defined in the Internal Revenue Code. Any earnings on non-qualified withdrawals are subject to federal income tax and may be subject to a 10% federal penalty tax, as well as state and local income taxes.

Contributions between $13,000–$65,000 ($26,000–$130,000 for married couples filing jointly) made in one year can be prorated over a five-year period without incurring gift taxes or reducing your federal unified estate and gift tax credit. If you contribute less than the $65,000 ($130,000 for married couples filing jointly) maximum, additional contributions can be made without incurring federal gift taxes, up to a prorated level of $13,000 ($26,000 for married couples filing jointly) per year. Gift taxation may result if a contribution exceeds the available annual gift tax exclusion amount remaining for a given Beneficiary in the year of contribution. For contributions between $13,000–$65,000 ($26,000–$130,000 for married couples filing jointly) made in one year, if the account owner dies before the end of the five-year period, a prorated portion of the contribution may be included in his or her taxable estate. Please consult your tax and/or legal advisor for such guidance.

Some restrictions apply. You are generally permitted to change the beneficiary to another qualified member of the family, as defined under the Internal Revenue Code, without triggering income tax and penalty. Not applicable for accounts opened under a Uniform Gifts/Transfers to Minors Act registrations.