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College and Career Savings Plans

UFEE encourages clients to save for higher education with a Coverdell Education Savings Account or 529 plan.  The cost of attending college is going up each year.  Recent investment vehicles including Section 529 college savings programs and Coverdell education savings accounts provide renewed opportunities to families who want the best education possible for the children.

What is a 529 plan?

A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Code which created these types of savings plans in 1996.

529 Plans can be used to meet costs of qualified colleges nationwide. In most plans, your choice of school is not affected by the state your 529 savings plan is from. You can be a CA resident, invest in a VT plan and send your student to college in NC.

Nearly every state now has at least one 529 plan available. It's up to each state to decide whether it will offer a 529 plan (possibly more than one) and what it will look like, meaning 529 plans can differ from state to state. You should research the features and benefits of your plan before you invest.

What is a Coverdell Education Account?

Coverdell Education Savings Accounts let you save for a wide range of qualified primary, secondary and higher education expenses in a tax-efficient way.  The benefits of Coverdell Education Savings Accounts include the ability to contribute up to $2,000 each year for each child up to the age of 18, the ability to choose investment products like stocks, bonds and mutual funds and be able to invite friends and family to contribute to the Coverdell account.

Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses.

If there is a balance in the Coverdell ESA when the beneficiary reaches age 30, it must generally be distributed within 30 days. The portion representing earnings on the account will be taxable and subject to the additional 10% tax. The beneficiary may avoid these taxes by rolling over the full balance to another Coverdell ESA for another family member.

More Information:
Smart Student Guide to Financial Aid and Coverdell Accounts
Smart Student Guide to Financial Aid and 529 Plans
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