Education Funding

When you think col­lege, you prob­a­bly think cost. No sur­prise. Col­lege is expen­sive. And a vari­ety of fac­tors can impact col­lege costs. How­ev­er, bal­ance cost with the fact that col­lege grad­u­ates earn sub­stan­tial­ly more than non-grad­u­ates, and col­lege soon becomes an invest­ment.

Over a full work­ing life, typ­i­cal col­lege grad­u­ates earn 66 per­cent more than high school grad­u­ates. Those with advanced degrees earn even more. Extend­ed over a life­time of work­ing, that’s a dif­fer­ence of more than $1 mil­lion dol­lars income.

Median earnings by level of education

Median Earnings

The Advantage of Choice

Fam­i­lies today, how­ev­er, are at an advan­tage. With a vari­ety of col­lege sav­ings options avail­able, and time on your side, care­ful research and plan­ning can posi­tion you to be pre­pared when your stu­dent starts col­lege. To get start­ed, com­pare col­lege sav­ings options side-by-side to under­stand what may best fit your needs and finan­cial sit­u­a­tion. Or read about each option indi­vid­u­al­ly.

529 Plan

The 529 Plan is a sim­ple and smart way to save for col­lege. It offers you con­trol as the account own­er, flex­i­bil­i­ty in your invest­ment choic­es and the abil­i­ty to trans­fer the account to anoth­er des­ig­nat­ed ben­e­fi­cia­ry, if need­ed.

Begin invest­ing when a child is young and sav­ings has the poten­tial to grow over time, tax-deferred, until you’re ready to make tax-free with­drawals for col­lege expens­es.


  • Any U.S. cit­i­zen or res­i­dent can open (own), con­tribute to or be a des­ig­nat­ed ben­e­fi­cia­ry of an account.
  • No state res­i­den­cy, age or income restric­tions apply to account own­er­ship.

Initial Investment and Contribution Limit

  • Open your account with an ini­tial invest­ment as low as $750 OR
  • Open your account with an ini­tial invest­ment as low as $150 per fund and sub­se­quent­ly, a min­i­mum of $50 per month, when you com­mit to invest auto­mat­i­cal­ly on a reg­u­lar basis using an Auto­mat­ic Invest­ment Ser­vice.
  • Max­i­mum 529 Plan Account Con­tri­bu­tion: $412,000 (2014−2015 aca­d­e­m­ic year) per des­ig­nat­ed ben­e­fi­cia­ry.

Tax Advantages

  • Earn­ings: Earn­ings grow tax deferred at the fed­er­al lev­el.
  • With­drawals: With­drawals are tax free at the fed­er­al lev­el if used for qual­i­fied edu­ca­tion expens­es such as tuition, fees, room and board, books and major sup­plies.
  • Gift and Estate Tax Ben­e­fits:
    • There is no gift tax for con­tri­bu­tions:
    • Up to $14,000 per des­ig­nat­ed ben­e­fi­cia­ry per year ($28,000 for mar­ried cou­ples) OR
    • Up to $70,000 ($140,000 for mar­ried cou­ples) spread over a five-year peri­od, as long as no addi­tion­al con­tri­bu­tions are made to the same des­ig­nat­ed ben­e­fi­cia­ry over the five-year peri­od. To take advan­tage of this option, you must make an elec­tion on your fed­er­al gift tax return for the year of the con­tri­bu­tion.

About Coverdell Education Savings Accounts (CESA)

A Coverdell Edu­ca­tion Sav­ings Account allows you to make an annu­al non-deductible con­tri­bu­tion to a spe­cial­ly des­ig­nat­ed invest­ment trust account. The account grows fed­er­al income tax free and with­drawals are taxfree. Coverdell funds can be used for col­lege expens­es as well as K-12 expens­es.

Coverdell at a Glance

Max­i­mum Invest­ment $2,000 per year per ben­e­fi­cia­ry.
Qual­i­fied Expens­es K-12 and col­lege expens­es such as tuition, fees, books, sup­plies, equip­ment, lim­it­ed room and board.
Account Con­trol Respon­si­ble Indi­vid­ual on behalf of the ben­e­fi­cia­ry.
Tax Advan­tages
  • Earn­ings grow fed­er­al and state income tax deferred.
  • With­drawals are fed­er­al tax-free when used for
    qual­i­fied expens­es.
Estate and Gift Tax Advan­tages Con­tri­bu­tions qual­i­fy for the $13,000 ($26,00 for mar­ried cou­ples) gift tax exclu­sion.
Income Restric­tion Con­trib­u­tors must have less than $95,000 ($190,000 for mar­ried cou­ples) in mod­i­fied adjust­ed gross income to qual­i­fy for full $2,000 con­tri­bu­tion.
Tax Cred­it Affect­ed Yes. See your tax advi­sor.
With­draw­al Penal­ty Earn­ings on non-qual­i­fied with­drawals taxed at owner’s rate plus a 10 per­cent penal­ty.

Coverdell Benefits and Considerations

  • Invest $2,000 Annu­al­ly
    Invest up to $2,000 per year per child, up to age 18, to save for edu­ca­tion­al expens­es. Be care­ful to mon­i­tor total con­tri­bu­tions per child if mul­ti­ple fam­i­ly mem­bers are con­tribut­ing. If total con­tri­bu­tions exceed $2,000, a penal­ty will apply.
  • Oth­er Fam­i­ly Mem­bers May Con­tribute
    Grand­par­ents and oth­er fam­i­ly mem­bers can set up a Coverdell account in your child’s name.
  • May Be Used for K-12 Expens­es
    The funds may be used to cov­er costs asso­ci­at­ed with attend­ing ele­men­tary or sec­ondary school, whether pub­lic, pri­vate or reli­gious.
  • Age Lim­i­ta­tions
    The ben­e­fi­cia­ry of a Coverdell must be younger than 18 at the time of the con­tri­bu­tion. The account must be ful­ly with­drawn by the time the ben­e­fi­cia­ry turns 30.
  • Account Con­trol
    A Coverdell account even­tu­al­ly will be dis­trib­uted to the ben­e­fi­cia­ry – it can­not be refund­ed back to whomev­er estab­lished the account. The Respon­si­ble Indi­vid­ual may, how­ev­er, change the ben­e­fi­cia­ry of the account pro­vid­ed restric­tions were not put in place when the account was estab­lished.
  • Coverdell and Finan­cial Aid
    When apply­ing for finan­cial aid, the assets in a Coverdell account are con­sid­ered an asset of the account cus­to­di­an. With­drawals are not report­ed as stu­dent or par­ent income as long as they are used for qual­i­fied expens­es.

About Uniform Gifts to Minors Act / Uniform Transfers to Minors Act Accounts (UGMA/UTMA)

A UGMA/UTMA account pro­vides a way for an adult to trans­fer assets to a minor. These acts, which most states have estab­lished, pre­vent fam­i­lies from hav­ing to hire an attor­ney to draw up a spe­cial trust in order for a minor to own secu­ri­ties. While not specif­i­cal­ly designed as col­lege sav­ings accounts, they are used for this pur­pose because the assets belong to the minor when he reach­es the age of major­i­ty in his state. He then may use those assets to pay col­lege expens­es.

UGMA/UTMA at a Glance

Max­i­mum Invest­ment No Lim­it.
Account Con­trol Cus­to­di­an before child reach­es age of major­i­ty; the child takes con­trol after reach­ing age of major­i­ty.
Per­mis­si­ble Use of Funds
  • Cus­to­di­an — Any rea­son­able expense for the child.
  • Child 18 or old­er — Any expense, col­lege or non-col­lege relat­ed.
Income Tax Treat­ment For chil­dren under age 18:
  • First $950 of unearned income is tax-exempt.
  • Next $950 is taxed at the child’s rate.
  • More than $1,900 taxed at the parent’s rate.
Estate and Gift Tax Advan­tages Con­tri­bu­tions qual­i­fy for the $14,000 ($28,000 for mar­ried cou­ples) gift tax exclu­sion.
Income Restric­tion None.
Tax Cred­it Affect­ed No.
Penal­ties Lim­it­ing Flex­i­bil­i­ty Mon­ey can be used at any time for the ben­e­fit of the child with­out penal­ty.
Finan­cial Aid Treat­ment Student’s assets; may affect amount of finan­cial aid received.

UGMA/UTMA Benefits and Considerations

  • Con­tribute as much as you want up to $14,000 per year ($28,000 for a mar­ried cou­ple) with­out pay­ing fed­er­al gift tax.
  • Any­one can open or con­tribute on behalf of a child.
  • The cus­to­di­an does not own the assets and any with­drawals before the child reach­es the age of major­i­ty must be for the child’s ben­e­fit.
  • Once the child reach­es the age of major­i­ty, the assets become his to use how­ev­er he pleas­es.