Education Funding Options

Fea­tures 529 Sav­ings Plan Coverdell ESAs UGMA/UTMA
Income lim­i­ta­tions None Adjust­ed Gross Income (AGI) lim­its apply None
Max­i­mum year­ly con­tri­bu­tion per ben­e­fi­cia­ry Varies by state — Invest­Ed Plan max­i­mum account val­ue per ben­e­fi­cia­ry is $350,000 for 2011 – 2012 aca­d­e­m­ic year. $65,000 can be donat­ed per con­trib­u­tor in the first year of a five-year peri­od with­out exceed­ing the annu­al fed­er­al gift tax exclusion.1 $2,000 $13,000 with­out exceed­ing the annu­al fed­er­al gift tax exclu­sion.
Tax­a­tion of account earn­ings and qual­i­fied with­drawals Account earn­ings grow fed­er­al income tax-deferred until with­drawn. With­drawals are fed­er­al income tax-free if used for qual­i­fied high­er edu­ca­tion expenses.2 Account earn­ings grow fed­er­al income tax-deferred until with­drawn. With­drawals are fed­er­al income tax-free if used for qual­i­fied edu­ca­tion expens­es. Earn­ings are tax­able on a cur­rent basis at the child’s and/or parent’s rate, depend­ing on the amount of income earned. With­drawals of con­tri­bu­tions are not sub­ject to income tax.
Abil­i­ty to change ben­e­fi­cia­ries Yes Yes, if des­ig­nat­ed on the CESA Sim­pli­fi­er No
Abil­i­ty to change own­ers Yes Yes, if des­ig­nat­ed on the CESA Sim­pli­fi­er No
Invest­ment options Age-based, Sta­t­ic and Indi­vid­ual fund port­fo­lios avail­able with many 529 plans. Wide range of secu­ri­ties Wide range of secu­ri­ties
State tax deduc­tion Varies by state No No
Con­trol of with­drawals Own­er of account Trans­fers to child when child reach­es legal age unless oth­er­wise des­ig­nat­ed on the CESA Sim­pli­fi­er. Trans­fers to child when child reach­es legal age.
Qual­i­fied use of pro­ceeds Any post-sec­ondary school accred­it­ed in the U.S. & has Finan­cial Aid School Code -www.ope.ed.gov/accreditation(Includes over­seas schools as long as they have U.S. accred­i­ta­tion.) Any qual­i­fied K-12 or accred­it­ed post-sec­ondary school expens­es in the U.S. Not applic­a­ble. Cus­to­di­an may make with­drawals for a vari­ety of uses for the minor’s ben­e­fit.
Penal­ties for non-qual­i­fied with­drawals 10% Fed­er­al penal­ty on earn­ings. 10% Fed­er­al penal­ty with­held on earn­ings No
Own­er­ship of assets for finan­cial aid pur­pos­es Account Owner3 Respon­si­ble Indi­vid­ual- if the Respon­si­ble Indi­vid­ual is the parent3 Stu­dent
Age Restric­tions None No con­tri­bu­tions after the beneficiary’s 18th birth­day. Dis­tri­b­u­tions must be tak­en with­in 30 days after beneficiary’s 30th birth­day unless rolled over to a new ben­e­fi­cia­ry. Except in the case of a spe­cial needs ben­e­fi­cia­ry. Account trans­fers to the child when child reach­es legal age.