UGMA, Custodial and 529 Plans

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UGMA, Custodial and 529 Plans

Saving for college can be harder than saving for retirement. The clock starts ticking the day your child is born – and the closer college draws, the less risk you can take. Consider these tax-advantaged tools:

• Coverdell Education Savings Accounts (“ESAs”) let you save up to $2,000 per year per student. Earnings grow tax-deferred, and withdrawals are tax free for education costs.
• Section 529 Plans are state-sponsored college savings plans. Each state sets its own lifetime contribution limit, which ranges between $235,000 and $520,000. Traditional “prepaid tuition” plans cover specific units of tuition such as a credit hour or course. Newer “college savings” plans invest contributions in mutual funds for potentially higher growth, generally adjusting portfolios from stocks to bonds and cash as your child ages. You can choose any state’s plan; however, some states offer deductions for contributions to their own plans.
• U.S. Savings Bonds let you defer tax on gains until you redeem the bond. Interest on Series EE Savings Bonds issued after 1989 to individuals age 24 or above may be tax-free if you use it the year you redeem the bond for “qualified educational costs” (tuition and fees minus tax-free scholarships, qualified state tuition plan benefits, and costs for which you claim the American Opportunity or Lifetime Learning credit). For 2018, the exclusion phases out for households with “modified AGI” from $79,700-94,700 (singles and heads of households) or $119,550-149,550 (joint filers) and isn’t available for married couples filing separately.

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