COLLEGE SAVINGS 101

Compare savings options

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

YEAR 2017 RULESRoth IRAUGMA/UTMA
Federal Income TaxNon-deductible contributions; withdrawn earnings excluded from income after age 59 1/2 – and five years; 10% penalty on early withdrawals waived if used for qualified higher education expensesEarnings and gains taxed to minor; first $1050 of unearned income is tax exempt; unearned income over $2,100 for certain children under age 24 is taxed at parents rate
Federal Gift Tax TreatmentNo gift involvedTransfers treated as completed gift; apply $14,000 annual gift exclusion
Federal Estate Tax TreatmentValue included in the owner's gross estateValue removed from donor's gross estate unless donor remains as custodian
Maximum Investment$5,500($6,500 for taxpayers age 50 and over)No limit
Qualified ExpensesSame as 529 planNo restrictions
Able to Change BeneficiaryNot applicableNo; represents an irrevocable gift to the child
Time/Age RestrictionsWithdraw earnings tax-free only after five years and age 59 1/2Custodianship terminates when minor reaches age established under state law (generally 18 or 21)
Income RestrictionsMust have taxable compensation; contribution limit phases out for incomes between $184,000 and $194,000 (joint filers) or $117,000 and $132,000 (single)None
Federal Financial AidNot counted as asset; withdrawals of principal and interest counted as financial aid incomeCounted as student's asset
InvestmentsBroad range of securities and certain other investmentsAs permitted under state laws
Use for Nonqualifying ExpensesTaxable portion of withdrawal prior to age 59 1/2 also subject to 10% early withdrawal penaltyFunds must be used for benefit of the minor
 

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