College Savings Plan Comparison Chart

Custodial Account

Coverdell Education Savings Account (ESA)

529 Savings Plan

529 Prepaid Tuition Plan

DESCRIPTION

• Account established at a financial institution.
• Managed by parent or another designated guardian.
• Assets must be used for benefit of the child.

• Savings vehicle that allows assets to accumulate tax-deferred
• Can be established by parents, grandparents, or family friends
• Maximum contributions of $2,000 per beneficiary, per year

• An investment account that allows money to accumulate tax-deferred for K–12 tuition expenses, registered apprenticeship programs, college expenses, as well as to repay qualified student loans
• Sponsored by a state and managed by various financial institutions

• Savings plan designed to increase in value at the same rate as college tuition
• Can be sponsored by a state or a private college or university
• Contract plans offer prepurchase of a specified number of years of tuition; unit plans offer prepurchase of the percentage of tuition costs.

ADVANTAGES

• Assets controlled by the custodian
• Income earned is taxed to the child. Kiddie tax rules apply if the child is younger than 19, or younger than 24 if a full-time student.
• Account costs are generally low; no trustee costs

• Distributions are exempt from federal taxes if used to pay the qualified education expenses of the beneficiary.
• Can be used to cover elementary and secondary school expenses, as well as college.
• Unlimited investment options
• Can be rolled over to another ESA for the same beneficiary or another family member.

• Account assets professionally managed
• Investment choices within plan can be modified for a single beneficiary twice in a single calendar year without tax penalty.
• Account owners can change the plan beneficiary (if the new beneficiary is a relative of the previous beneficiary).
• Withdrawals are federally tax-exempt if used for K−12 tuition and qualified expenses; registered apprenticeship programs fees, books, and required equipment; as well as college expenses, including tuition, room and board, fees, books, and equipment; can be used for qualified distributions for elementary and secondary school expenses, up to
• $10,000 per year, per student. (Please note: Not all states recognize these updated federal K–12 provisions. Be sure to check with your state.) Repayment of qualified student loans has a lifetime limit of $10,000 for a 529 plan beneficiary and additional
• $10,000 per sibling of the plan beneficiary.

• Future college tuition costs can be locked in at today’s prices.
• Offers a form of guaranteed return, as account value is designed to increase at the pace of tuition cost inflation

TRADE-OFFS

• The child gains complete access to the account at age of trust termination (generally age 18–21, depending on the state).
• Transfers are irrevocable.

• Income limitations on donor: Contributions phased out for incomes between $95,000 and $110,000 (single filers) and between $190,000 and $220,000 (joint filers)
• Contributions may be made until the student reaches age 18.
• The remaining funds must be distributed to the beneficiary at age 30, with earnings taxed as ordinary income plus a 10 percent penalty.

• No guaranteed rate of return
• Distributions not used for qualified higher education expenses are subject to federal income tax plus a 10 percent penalty; taxes and penalties apply only to earnings in the account.

• The beneficiary must attend one of the plan’s participating colleges (typically a public college within that state) to receive maximum benefit.
• Covers only undergraduate tuition costs
• Most plans require all withdrawals to be made within 10 years from when a student starts college and by age 30.
• Distributions not used for qualified higher education expenses are subject to federal income tax plus a 10 percent penalty; taxes and penalties apply only to earnings in the account.

FINANCIAL AID IMPACT

• High impact
• Treated as an asset of the child

• High impact, if the account is owned by the student
• Low impact if the account is owned by the parent
• Treated as an asset of the account owner
• Qualified distributions are not considered the income of parents or student.

• Low impact
• Treated as an asset of account owner (custodial versions of 529 plans treated as parent assets of dependent students)
• Qualified distributions are not considered the income of parents or student.

• Low impact
• Treated as an asset of account owner; asset value equals refund value of the plan (previously treated as a resource and reduced aid dollar-for-dollar)
• Qualified distributions are not considered the income of parents or student.