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Comparison Chart

The following breakdown compares the 529 to other education-savings possibilities.

Education Account Comparison

Contributions and Deductions

  529 Savings Plan 529 Prepaid Plan UGMA/UTMA Coverdell ESA Roth IRA
Maximum Annual Contribution Limit $65,000 per beneficiary in the first year of a five-year period to avoid gift-tax consequences ($130,000 per married couple)  Same as 529 savings plan  $13,000 per beneficiary per year to avoid gift tax consequences ($26,000 per married couple)  $2,0002 per year per beneficiary; contributions stop when child turns 18  $5,000 per year plus $1,000 for those age 50+ (limit includes all Roth and Traditional IRAs combined) 
Maximum Account Lifetime Limit  Varies by program - around $300,000  Varies by program  Unlimited Unlimited Unlimited
Limitations on Income to Contribute None None None Single filers: $95-110,000  Married filers: $190-220,000 Single filers:  $105-120,000 Married filers:  $166-176,000 Account owner must have earned income to contribute
Age Limitation to Contribute None None None Contributions stop when child turns 18 None
Tax-Deductible Contributions No federal deduction; state tax deduction varies by the account owner's state of residence and the plan Same as 529 savings plan No No No

Withdrawal and Taxation

  529 Savings Plan 529 Prepaid Plan UGMA/UTMA Coverdell ESA Roth IRA
Control of Withdrawals Account owner/ participant Same as 529 savings plan  Transfers to child upon age of majority or later if state law permits Account owner/ participant; beneficiary has the legal right to be named as account owner at age of majority Account owner
Use of Proceeds Expenses1 from any accredited college/ post-secondary program in the U.S. and some foreign locations Often limited to tuition/ fees from in-state post-secondary programs Limited to any types of expenses for child's benefit (cannot be used for parents' expenses) Expenses1, 3 from any accreditied college/ post-secondary program in the U.S. and some foreign programs and expenses5,8 from elementary and high school 8 Expenses1 from any accredited post-secondary program in the U.S. and some foreign programs6
Taxation - Account Earnings Tax-deferred Same as 529 savings plan Taxable Kiddie Tax under age 19, any investment income over $1,900 taxed at parent's federal tax rate.  Expanded Rule full-time student under age 24 is now included Tax-deferred Tax-deferred.  Tax-free only if the 5-year requirement is met and the withdrawal is for death, diability, attainment of age 59 1/2 or first-time homebuyer.  If not, earnings and possibly conversion amounts withdrawn are taxable at the account owner's rate.  10% penalty on earnings and any conversion amounts withdrawn unless some other exception7 to the penalty applies.
Taxation - Qualified Withdrawals Federal:  tax-free  State:  varies by the account owner's state of residence.9 Same as 529 savings plan See above Tax-free See above
Taxation -  Non-Qualified Withdrawals Federal and state:  distributed earnings (prorata) taxed at account owner's or beneficiary's rate depending on to whom the 529 plan provider directs and reports the distribution Same as 529 savings plan See above Distributed earnings (prorata) taxed at account owner's rate See above
Penalties - Non-Qualified Withdrawals 10% penalty on earnings Same as 529 savings plan None 10% penalty on earnings See above

Other

 

  529 Savings Plan 529 Prepaid Plan UGMA/UTMA Coverdell ESA Roth IRA
Ownership and federal financial aid impact Account owner asset; aid is reduced by 3 to 5.64% of the 529 value if the parent is account owner.2 Same as 529 savings plan  Student asset; aid is reduced by 20% of the UTMA/UGMA value Account owner asset; aid is reduced by 3 to 5.64% of account value if parent is account owner 2 The taxable portion of a withdrawal for education is treated as income, which could affect financial aid
Ability to Change Beneficiary? Yes3 Typically yes, see specific plan rules No Yes3 (beneficiary must be under age 30) Yes
Funds Removed from the Donor's Estate? Yes4 Typically yes, see specific plan rules Typically yes, unless the donor dies while acting as custodian Yes No
Investment Options Varies per plan; typically portfolios of mutual funds, fixed income options may also be available depending on the 529 provider Tuition units guaranteed to match tuition inflation UGMA:  Cash, bank accounts, stocks, bonds, mutual funds.  UTMA:  options may also include real estate, LPs, fine art, patents and royalties Wide range of securities (limit may be set by provider) Wide range of securities (limit may be set by provider)

For more information, call us at 703.584.3494 or 703.584.3400 or contact us.


1Tuition, fees, books, supplies and equipment required as a condition of enrollment and room and board (amount set by the institution) as long as the student attends at least half time. For 2009 and 2010, computer and Internet expenses are considered qualified 529 expenses.

2 In most cases, if the student’s grandparent is account owner, the asset will have no impact on financial aid. This pertains to the federal student aid formula. Other types of financial aid may have different rules.

3 There are no tax implications as long as the “new” beneficiary is a member of the original beneficiary’s family and from the same generation. A family member of a designated beneficiary is a son, daughter, grandson, granddaughter, stepson, stepdaughter, brother, sister, stepbrother, stepsister, father, mother, stepfather, stepmother, niece, nephew, aunt, uncle, first cousin, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, sister-in-law, spouse or the spouse of any of the foregoing individuals. For this purpose, a child includes a legally adopted child, and a brother or sister includes a brother or sister by half blood. If the new beneficiary is a family member from a younger generation, the transaction may subject the original beneficiary to gift taxes and generation-skipping transfer taxes. The beneficiary may be changed to a non-family member; however, this is not a tax-free transaction.

4 If the contributor front loads the contribution (e.g., $65,000 contribution in a single year), then dies within the five year period, a prorated portion of the contribution may be included in the contributor’s estate.

5 Tuition, fees, academic tutoring, special needs services, books, supplies and other expenses which are incurred in connection with the enrollment or attendance at a public, private or religious school and expenses for the purchase of computer technology or equipment or Internet access to be used by the beneficiary during any years the beneficiary is in school.

6 Distributions from a Roth IRA come out of the account in the following order: contributions, conversion amounts, earnings.

7 Exceptions to the 10% penalty are: death, disability, attainment of age 59 ½, first-time home buyer, qualified higher education expenses, substantially equal payments, medical bills greater than 7.5% of AGI, and medical insurance premiums after losing a job.

8 This is a provision of the Economic Growth and Tax Reconciliation Relief Act of 2001 (EGTRRA ’01). Remaining provisions are scheduled to expire on December 31, 2010, at which time the law may or may not be reinstated.

9 Favorable state tax treatment for investing in a Section 529 college savings plan may be limited to investments made in a Section 529 plan offered by your home state.

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