Flipbook_College_2017 - page 10-11

• Annual contribution limit: $2,000 per child
(under age 18)
• Income eligibility limits (based on donor’s adjusted
gross income)
• Assets must be used by the time the beneficiary
reaches age 30 (with some exceptions)
• Funds may be used for qualified elementary,
secondary, and post-secondary educational expenses
• Flexible investment options
• Higher contribution limits (set by each state)
• No income eligibility limits
• Typically no age restriction (open to adults and
children)
• Funds may be used only for post-secondary education
• More limited investment options, which become more
conservative as the child ages
As with other investments, there are generally fees and expenses associated with participation in an
ESA and a Section 529 savings plan. There is also the risk that the investments may lose money or not
perform well enough to cover college costs as anticipated. Nonqualified withdrawals of earnings may be
taxed as ordinary income and subject to a 10% federal income tax penalty.
The tax implications of a 529 savings plan should be discussed with your legal and/or tax advisors
because they can vary significantly from state to state. Also be aware that most states offer their own
529 plans, which may provide advantages and benefits exclusively for their residents and taxpayers.
Before investing in a 529 savings plan, please consider the investment objectives, risks, charges,
and expenses carefully. The official disclosure statements and applicable prospectuses — which
contain this and other information about the investment options, underlying investments, and
investment company — can be obtained by contacting your financial professional. You should read
these materials carefully before investing.
Tax-Advantaged Savings:
ESAs & 529 Plans
Education Savings Account
Section 529 Savings Plan
Two types of tax-advantaged plans are specifically designed to help
families save for higher-education expenses: the
Coverdell Education
Savings Account (ESA)
and the
Section 529 plan
.
Although contributions to these plans are not tax deductible, withdrawals — including
any earnings — are free of federal income tax if they are used to pay qualified education
expenses, including tuition, fees, room and board, books, and supplies.
2015
2016
Parents using a 529 plan
22
%
18%
Students using a 529 plan
11% 12%
Source: College Savings Foundation, 2016
The highest average total college savings are reported
by families who are using 529 college savings plans.
Use of 529 plans by students and parents
Source: Sallie Mae, 2016
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