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Taxation of account earnings and qualified withdrawals Account earnings grow federal income tax-deferred until withdrawn.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tax-free if used for qualified higher education expenses.2 Account earnings grow federal income tax-deferred until withdrawn.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.