COLLEGE SAVINGS 101

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

YEAR 2021 RULES529 PlanCoverdell Education Savings AccountsRoth IRAMutual Funds
Federal Income TaxNon-deductible contributions; withdrawn earnings excluded from income to extent of qualified higher education expensesNon-deductible contributions; withdrawn earnings excluded from income to extent of qualified higher education expenses and qualified K-12 expenses also excludedNon-deductible contributions; withdrawn earnings excluded from income after age 59 1/2 – and five years; 10% penalty on early withdrawals waived if used for qualified higher education expensesEarnings and gains taxed in year realized; special lower tax rates for certain dividends and capital gains
Federal Gift Tax TreatmentContributions treated as completed gifts; apply $15,000 annual exclusion, or up to $75,000 with 5-year electionContributions treated as completed gifts; apply $15,000 annual exclusionNo gift involvedNo gift involved; direct payments of tuition not considered gifts
Federal Estate Tax TreatmentValue removed from donor's gross estate; partial inclusion for death during a 5-year election periodValue removed from donor's gross estateValue included in the owner's gross estateValue included in the owner's gross estate
Maximum InvestmentEstablished by the program; many in excess of $400,000 per beneficiary$2,000 per beneficiary per year combined from all sources$6,000 ($7,000 for taxpayers age 50 and over) per yearNo limit
Qualified ExpensesTuition, fees, books, computers and related equipment, supplies, special needs and some room and board at eligible colleges and universities; costs of apprenticeship programs; up to $10,000 per year in tuition expenses at private, public and religious K-12 schools; Up to $10,000 in student loan payments for the beneficiary and each of the beneficiary's siblings.Tuition, fees, books, computers and related equipment, supplies, special needs and some room and board at eligible colleges and universities and at K-12 institutions. For K-12 only, other required expenses including uniforms, some academic tutoring, and some supplementary items and services.No restrictionsMay include education, housing, transportation, employment training and support and other expenses that improve health, independence and/ or quality of life
Able to Change BeneficiaryYes, to another member of the beneficiary's familyYes, to another member of the beneficiary's familyNot applicableNot applicable
Time/Age RestrictionsNone unless imposed by the programContributions before beneficiary reaches age 18; use of account by age 30Withdraw earnings tax-free only after five years and age 59 1/2None
Income RestrictionsNoneAbility 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 $196,000 and $206,000 (joint filers) or $124,000 and $139,000 (single)None
Federal Financial AidCounted as asset of parent if owner is parent or dependent studentCounted as asset of parent if owner is parent or dependent studentNot counted as asset; withdrawals of principal and interest counted as financial aid incomeCounted as asset of the owner
InvestmentsMenu of investment strategies as developed by the programBroad range of securities and certain other investmentsBroad range of securities and certain other investmentsMutual funds
Use for Nonqualifying ExpensesWithdrawn earnings subject to federal tax and 10% penaltyWithdrawn earnings subject to federal tax and 10% penaltyTaxable portion of withdrawal prior to age 59 1/2 also subject to 10% early withdrawal penaltyNo restrictions
 

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