Comparison of College Savings Vehicles

Comparison of College Savings Vehicles

Core Facts

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2015-12-11

 

 

 

            
 

529 plans

Coverdell ESA

U.S. savings bonds

Custodial account

Participation restrictions

No, though state-run prepaid tuition plans are generally limited to state residents

Yes, income limit for contributions and $2,000 maximum annual contribution per child

No, but ability to exclude bond proceeds from federal income tax depends on income

No

Control of underlying investments

No

Yes

Yes

Yes

Federal tax-free withdrawals if funds are used for qualified education expenses

Yes (withdrawals may also be exempt from state income tax, depending on state law)

Yes (withdrawals may also be exempt from state income tax, depending on state law)

Yes, but income limits and other requirements must be met (bond proceeds are generally exempt from state income tax)

No

Penalty if funds are not used for qualified education expenses

Yes, a 10 percent federal penalty applies to the earnings portion of all nonqualified withdrawals (a state penalty may also apply)

Same as 529 plans

No, but the bond proceeds won't be exempt from federal income tax

No, but withdrawals from the account can only be made for the child's benefit

Federal financial aid treatment (student assets are weighed more heavily than parent assets)

Parent asset, if parent or student is account owner, or if 529 plan was funded with custodial account funds

Parent asset, if parent is account owner

Parent asset, if parent is owner of bonds

Student asset

Fees and expenses

College savings plan: typically an annual maintenance fee, administration fees, and investment expenses based on a percentage of total account value

 

Prepaid tuition plan: typically an enrollment fee and various administrative fees

There may be fees associated with opening and/or maintaining an account, depending on financial institution

No fees or expenses, except for the possibility of brokerage fees if bonds are purchased through a broker

There may be fees associated with opening and/or maintaining an account, depending on financial institution

 

Note: Investors should consider the investment objectives, risks, charges and expenses associated with 529 plans carefully before investing. More information about 529 plans is available in the issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits. As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated.

Note: The availability of the tax or other benefits mentioned above may be conditioned on meeting certain requirements.

 

IMPORTANT DISCLOSURES

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

 

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable-- we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Some of this material has been provided by Broadridge Investor Communications Solutions, Inc.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances.
Member FINRA & SIPC.

 

 

 

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Founded in 1976, David Lerner Associates is a privately-held broker/dealer with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Teaneck and Princeton, NJ; and White Plains, NY. For more information contact David Lerner Associates Call 516-921-4200 Visit our website: www.davidlerner.com

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Contact

Jake Mendlinger
Account Manager
Zimmerman/Edelson
516.829.8374 X 232
jmendlinger@zimmed.com

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