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College Savings Plans

We assist clients with saving for college in various ways:

529 Plans - We offer 529 Plans as one way to save for college. Typically these investments are held directly at the fund company, which is chosen by the state that is sponsoring the 529 Plan. Contributions to a 529 Plan are not tax deductible at the federal level, but may be at the state level. One major advantage of this type of account is that it not only offers tax deferred growth, but distributions that are used for qualified education expenses are not taxable as well. The maximum level of funding in these types of accounts is determined by each state but is typically around $250,000-$300,000. The beneficiary of the account can be changed, tax-free, to another member of the same family.

UTGA/UTMA Accounts - These types of accounts are custodial accounts for the benefit of a minor. Once they are funded, the gift is considered an irrevocable gift and the beneficiary cannot be changed. Earnings above $1,050 are taxable to the beneficiary (minor) and if they are above $2,100 then they are taxed at the parent’s tax rate. There are no investment restrictions or funding limits with this type of account, so it does offer more flexibility than a 529 account.

Prepaid Tuition Plans – Many states offer prepaid tuition plans as another way to save for college. In this type of plan the owner of the account, typically a parent, purchases a plan for the beneficiary for a specific number of years of college (either 2 or 4 years). These types of plans can be paid for in a lump sum, or over a longer period of time, sometimes until the beneficiary enters college. The major advantage to this type of plan is that the owner is locking in the cost of tuition today for a college education years down the road. Another advantage is that there is no investment risk, as the plan purchased is guaranteed by the state sponsoring the plan.