COLLEGE SAVINGS 101

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Summarizes and compares the features of 529 plans, ESAs, UTMAs, IRAs, and education savings bonds.

YEAR 2017 RULESCoverdell Education Savings AccountsRoth IRATraditional IRA
Federal Income TaxNon-deductible contributions; withdrawn earnings excluded from income to extent of qualified higher education expenses and qualified K-12 expenses also excludedNon-deductible contributions; withdrawn earnings excluded from income after age 59 1/2 – and five years; 10% penalty on early withdrawals waived if used for qualified higher education expensesDeductible or non-deductible contributions; withdrawals in excess of basis subject to tax; 10% penalty on early withdrawals waived if used for qualified higher education expenses
Federal Gift Tax TreatmentContributions treated as completed gifts; apply $14,000 annual exclusionNo gift involvedNo gift involved
Federal Estate Tax TreatmentValue removed from donor's gross estateValue included in the owner's gross estateValue included in the owner's gross estate
Maximum Investment$2,000 per beneficiary per year combined from all sources$5,500($6,500 for taxpayers age 50 and over)$5,500($6,500 for taxpayers age 50 and over)
Qualified ExpensesTuition, fees, books, supplies, equipment, special needs; room and board for minimum half-time students; additional categories of K-12 expensesSame as 529 planSame as 529 plan
Able to Change BeneficiaryYes, to another member of the beneficiary's familyNot applicableNot applicable
Time/Age RestrictionsContributions before beneficiary reaches age 18; use of account by age 30Withdraw earnings tax-free only after five years and age 59 1/2Withdraw without penalty only after age 59 1/2
Income RestrictionsAbility to contribute phases out for incomes between $190,000 and $220,000 (joint filers) or $95,000 and $110,000 (single)Must have taxable compensation; contribution limit phases out for incomes between $184,000 and $194,000 (joint filers) or $117,000 and $132,000 (single)Must have taxable compensation; amount deductible reduced or eliminated for taxpayers who participate in an employer retirement plan and have income above certain limits
Federal Financial AidCounted as asset of parent if owner is parent or dependent studentNot counted as asset; withdrawals of principal and interest counted as financial aid incomeNot counted as asset; withdrawals of principal and interest counted as financial aid income
InvestmentsBroad range of securities and certain other investmentsBroad range of securities and certain other investmentsBroad range of securities and certain other investments
Use for Nonqualifying ExpensesWithdrawn earnings subject to federal tax and 10% penaltyTaxable portion of withdrawal prior to age 59 1/2 also subject to 10% early withdrawal penaltyTaxable portion of withdrawal prior to age 59 1/2 also subject to 10% early withdrawal penalty
 

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