Planning For College

There are two tax advantaged ways to save for college – Coverdell Educational Savings Accounts and 529’s. These accounts are very similar in many ways including the ability to change beneficiaries as well as the penalties on non-qualified withdrawals. Additionally, both allow qualified withdrawals to include tuition, books and room & board. However, there are a few main differences shown in the chart below:

Account Type Income Limits Contribution Limits Control Uses
Coverdell Educational Savings Account Your ability to contribute is phased out as your adjusted gross income increases. $2,000 per year per beneficiary Beneficiary may assume control at age of majority. (18 or 21 in most states) Kindergarten through high school, as well as higher education
529 No limits Typically $200,000+ overall limitation per beneficiary. Account owner maintains control. Higher Education*

*The Tax Cuts and Jobs Act of 2017 allows for additional qualifying distributions for private K-12.  Restrictions apply.

As you can see, unless your plans include saving for private schooling prior to college, 529’s hold a few key advantages. There are over 80 529 plans to choose from. To complicate matters, some states offer tax benefits for investing in your home state’s plan, while others do not. And although you need to consider many factors including tax implications, we strongly believe the most important aspect in selecting a 529 is choosing the best possible money management firm.

 

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Eligible Educational Institutions (Click to view)

 

Favorable state tax treatment for investing in a Section 529 college savings plan may be limited to investments made in a section 529 college savings plan offered by the customer’s or designated beneficiary’s home state, however, this is just one of many appropriate weighted factors to be considered in making an investment decision. You should consult a tax advisor about how state-based benefits (including any limitations) would apply to your specific circumstances. You may also want to contact your home state or any other 529 college savings plan to learn more about the features, benefits and limitations of that state’s 529 college savings plan.

An investor should consider the investment objectives, risks, and charges and expenses associated with municipal fund securities before investing. More information about municipal fund securities is available in the issuer’s official statement (or Program Description). Please read the official statement and prospectus carefully before investing.