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Parents who want to save money for their child’s college tuition and expenses and/or K-12 tuition can take advantage of federal and possible state tax benefits and keep control of the account.
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Parents who want to save money for their child’s education and expenses, K-college, can take advantage of federal tax benefits and allow their child to receive the balance of the funds once he or she reaches 30 years of age.
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Parents who don’t want to be limited to saving for education can take advantage of a lower tax rate on a portion of the earnings and allow their child to take control of the funds once he or she reaches adulthood.
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Can I deduct my contribution from my state taxes?
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Yes, if you live in Virginia.
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Am I taxed on the earnings in my account?
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There is a limited tax benefit under the parent's tax rate.
An initial amount of UGMA/UTMA earnings remain untaxed or taxed at a very low rate, but all remaining earnings are taxed at the parents’ highest marginal rate.
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Am I taxed on my withdrawals if they’re for qualified education expenses?
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Am I taxed on my withdrawals if they’re not for qualified education expenses?
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Yes, the earnings will be subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax. States take different approaches to the income tax treatment of withdrawals. For example, withdrawals for K-12 expenses may not be exempt from state tax in certain states.
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Yes, taxable and possible 10% penalty.
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Is there a limit on my income that affects my ability to contribute?
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Yes, your ability to contribute is phased out as your adjusted gross income increases.
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Is there a limit on the total amount of contributions and earnings for the account?
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Yes, there's no annual limit on contributions, but each plan has a limit on the total account value — which could be more than $500,000.
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The maximum annual contribution is $2,000 per year per beneficiary from all sources.
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Can I make qualified withdrawals for higher education tuition and expenses, which include books, meal plans and housing?
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N/A — this account is not education-specific.
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Can I make qualified withdrawals for K-12 tuition and expenses?
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Yes, only for tuition, which is limited to $10,000 per student per year. (Not all states allow this use of assets in a 529 savings plan, and state tax treatment varies.)
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N/A — this account is not education-specific.
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Can I make qualified withdrawals for non-education expenses?
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N/A — this account is not education-specific.
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What is the impact on my child’s ability to receive financial aid?
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Limited, depending on who is the owner of the account.
Money in a 529 savings plan that is owned by the parent is considered a parental asset and is factored into the Expected Family Contribution (EFC) determination at a lower percentage. Only 5.64% of this savings is counted against financial aid, which can make qualifying for financial aid easier.
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Limited, depending on who is the owner of the account.
If the money in a Coverdell ESA is owned by a parent, then 5.64% of the assets are counted against financial aid.
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Significant. Money in an UGMA or UTMA is considered an asset of the student and is factored into the EFC determination at a higher percentage. This designation can work against your family when your child applies for financial aid.
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Who controls the money in the account?
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Account owner (often a parent or grandparent) maintains control.
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Beneficiary, or the person the account is for (usually a minor), gains control at age 30.
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Beneficiary gains control at the age of majority, usually 18 or 21, depending on state.
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Is there an age limit for the beneficiary?
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No, it can be opened for a person of any age.
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Yes, when beneficiary reaches age 30.
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Yes, when beneficiary reaches the age of majority, usually 18 or 21, depending on state.
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Can I change the beneficiary of the account?
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Do I have a wide choice of how I invest my money in the account?
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Can I change the way my money is invested in the account?
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Am I able to invest in the American Funds College Target Date Series®, based on the date I'll use the money?
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