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 2022 RULES529 PlanUGMA/UTMAMutual Funds
Federal Income TaxNon-deductible contributions; withdrawn earnings excluded from income to extent of qualified higher education expensesEarnings and gains taxed to minor; first $1,100 of unearned income is tax exempt; unearned income over $2,200 for certain children under age 24 is taxed at rates for estates and trustsEarnings 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 $16,000 annual exclusion, or up to $80,000 with 5-year electionTransfers treated as completed gift; apply $16,000 annual gift exclusionNo 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 estate unless donor remains as custodianValue included in the owner's gross estate
Maximum InvestmentEstablished by the program; many in excess of $400,000 per beneficiaryNo limitNo limit
Qualified ExpensesCollege tuition, fees, books, computers and related equipment, supplies, special needs; room and board for minimum half-time students. Up to $10,000 in tuition expenses for K-12 schools. Up to $10,000 in student loan repayment.College tuition, fees, books, computers and related equipment, supplies, special needs; room and board for minimum half-time students. Up to $10,000 in tuition expenses for K-12 schools. Up to $10,000 in student loan repayment.No restrictions
Able to Change BeneficiaryYes, to another member of the beneficiary's familyNo; represents an irrevocable gift to the childNot applicable
Time/Age RestrictionsNone unless imposed by the programCustodianship terminates when minor reaches age established under state law (generally 18 or 21)None
Income RestrictionsNoneNoneNone
Federal Financial AidCounted as asset of parent if owner is parent or dependent studentCounted as student's assetCounted as asset of the owner
InvestmentsMenu of investment strategies as developed by the programAs permitted under state lawsMutual funds
Use for Nonqualifying ExpensesWithdrawn earnings subject to federal tax and 10% penaltyFunds must be used for benefit of the minorNo restrictions
 

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