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College Savings Options

Submitted by Southwest Investment Advisors on February 16th, 2018

 

YEAR 2019 RULES

 

529 Plan

 

Coverdell Education Savings Accounts

 

UGMA/UTMA

Federal Income Tax

 

Non-deductible contributions; withdrawn earnings excluded from income to extent of qualified higher education expenses

 

Non-deductible contributions; withdrawn earnings excluded from income to extent of qualified higher education expenses and qualified K-12 expenses also excluded

 

Earnings and gains taxed to minor; first $1,050 of unearned income is tax exempt; unearned income over $2,100 for certain children under age 24 is taxed at rates for estates and trusts

Federal Gift Tax Treatment

 

Contributions treated as completed gifts; apply $15,000 annual exclusion, or up to $75,000 with 5-year election

 

Contributions treated as completed gifts; apply $15,000 annual exclusion

 

Transfers treated as completed gift; apply $15,000 annual gift exclusion

Federal Estate Tax Treatment

 

Value removed from donor’s gross estate; partial inclusion for death during a 5-year election period

 

Value removed from donor’s gross estate

 

Value removed from donor’s gross estate unless donor remains as custodian

Maximum Investment

 

Established by the program; many in excess of $300,000 per beneficiary

 

$2,000 per beneficiary per year combined from all sources

 

No limit

Qualified Expenses

 

Tuition, fees, books, computers and related equipment, supplies, special needs and some room and board at eligible colleges and universities; up to $10,000 in tuition expenses at private, public and religious K-12 schools

 

Tuition, fees, books, supplies, equipment, special needs; room and board for minimum half-time students; additional categories of K-12 expenses

 

No restrictions

Able to Change Beneficiary

 

Yes, to another member of the beneficiary’s family

 

Yes, to another member of the beneficiary’s family

 

No; represents an irrevocable gift to the child

Time/Age Restrictions

 

None unless imposed by the program

 

Contributions before beneficiary reaches age 18; use of account by age 30

 

Custodianship terminates when minor reaches age established under state law (generally 18 or 21)

Income Restrictions

 

None

 

Ability to contribute phases out for incomes between $190,000 and $220,000 (joint filers) or $95,000 and $110,000 (single)

 

None

Federal Financial Aid

 

Counted as asset of parent if owner is parent or dependent student

 

Counted as asset of parent if owner is parent or dependent student

 

Counted as student’s asset

Investments

 

Menu of investment strategies as developed by the program

 

Broad range of securities and certain other investments

 

As permitted under state laws

Use for Nonqualifying Expenses

 

Withdrawn earnings subject to federal tax and 10% penalty

 

Withdrawn earnings subject to federal tax and 10% penalty

 

Funds must be used for benefit of the minor

From Savingforcollege.com

 

To determine which investments may be appropriate for you, consult with your financial professional.

 

Neither Southwest Investment Advisors nor LPL provide tax advice.

 

An investor should carefully consider the investment objectives, risks, charges and expenses associated with 529 plans before investing. More information is available in the issuer’s official statement which can be obtained from your financial professional. The official statement should be read carefully before investing.

 

Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents and taxpayers. The investments inside a 529 plan may fluctuate with changes in market conditions. When redeemed shares may be worth more or less than their original value.  Nonqualified withdrawals do not enjoy tax-favored treatment. The earnings part of a nonqualified withdrawal will be subject to federal income tax, and the tax will typically be assessed at the account owner’s rate, not at the beneficiary’s rate. Plus, the earnings part of a nonqualified withdrawal will be subject to a 10 percent federal penalty, and possibly a state penalty too.

 

This report is prepared for general circulation and is for informational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or service.  Market prices and other data may be obtained from outside sources and is not warranted as to completeness or accuracy.