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.