You have several alternatives for saving for your child's -- or for your own -- education.
The table below gives you a quick way to compare your choices.
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an be used for qualified higher education expenses, within limits, at any accredited post-secondary institution in the U.S. or abroad, including tuition, books, and room and board.
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Use for Minor
If used by the custodian before the Minor reaches the age of majority, use must be for benefit of the Minor. No restrictions on Minor's use once age of majority reached.
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Qualified Expenses
Must be used for qualified elementary, secondary or higher education expenses by the time beneficiary reaches 30 years of age.
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Annual: Typically, none.
Lifetime: As much as $300,000 in many plans. |
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per beneficiary under age 18; by individuals who meet Adjusted Gross Income (AGI) limits. |
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Can change anytime, without income tax ramifications, to any member of initial beneficiary's family (as defined in Internal Revenue Code Section 529). If new beneficiary is a generation below the old beneficiary, then there may be a gift and GST tax consequence. |
Completed gift to a minor. |
Can transfer balance to beneficiary's family member under 30 years of age without income tax ramifications only if new beneficiary is a generation below the old beneficiary. |
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Account owner may name beneficiaries and direct distributions. |
Custodian must give up control when Minor reaches age 18 (or age of majority according to the state). |
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Phase out of contributions:
Single Filers: $110,000
Joint Filers: $220,000 |
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Earnings are federal tax-free if used for qualified higher education expenses. State tax consequences may vary. |
Income and capital gains taxable to Minor (at parent's rate over certain limits for children under 14) unless income used to support Minor, then income taxable to person with obligation of support. |
Distributions for qualified higher education expenses of designated beneficiary are free of federal income tax. State tax consequences may vary. Distributions will be tax-free only for those who do not claim an American Opportunity or Lifetime Learning Credit (if eligible) for the same expenses in the same year. |
Earnings taxed at both federal and state levels in year realized. |
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Individuals can contribute up to $17,000 annually ($34,000 if married and filing jointly) per beneficiary. Another option is to make a lump sum contribution up to five times the annual gift tax exclusion and spread it over five years. Up to $85,000 ($170,000 if married and filing jointly) once within a 5-year period without triggering gift taxes. Generally, donor does not include account in estate.
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Individuals can gift up to $17,000 ($34,000 if married and filing jointly) each year to Minor. Assets included in donor's estate if donor is also current custodian and dies while the child is a minor.
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ift counts against $17,000 ($34,000 if married and filing jointly) per beneficiary annual gift tax exclusion. Generally, donor does not include account in estate.
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Account assets part of owner's estate.
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Earnings subject to income taxes at your tax rate plus a 10% federal income tax penalty. |
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Earnings portion only is taxed to you at ordinary rate and subject to 10% penalty. |
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