Comparison chartThere are several methods that people use to save for college, and each has its own features and benefits. Check here to find out how 529 plans stack up against other ways to save.
| 529 College Savings Plan | UGMA/UTMA
(Custodial account)1 |
Coverdell Education Savings Account (ESA) | Savings Bond | |
| Who controls the account? | Account owner | Custodian, until child reaches age of majority | Account owner (or child at age 30) | Bond owner |
| For what purposes can the proceeds be used? | Any qualified higher education expense; can include tuition, certain room and board costs, fees, books, and supplies at eligible institutions of higher education | Benefit of the child (not just education) | Any qualified education expense; can include tuition, certain room and board costs, fees, books, and supplies at eligible educational institutions | Tuition and fees required for a degree or certificate granting program at post-secondary educational institutions; room and board and books are not included |
| Are there income limitations? | No | No | Yes, contributions are phased out for joint or single filers with modified adjusted gross income that exceeds the limit2 | Yes, exclusion benefits are phased out for joint or single filers with modified adjusted gross income that exceeds the limit3 |
| What is the federal income tax impact? | Earnings grow tax deferred and are free from federal income tax when used for qualified higher education expenses4 | Income and capital gains are taxable to the child5 | Earnings grow tax deferred and are free from federal income tax when used for qualified education expenses4 | Interest income is tax free if used for qualified tuition and only if bond is in parent's name; otherwise, taxable income |
| Does it offer state tax benefits? | Availability of state tax credit and deduction varies by state
Earnings grow tax deferred and are free from state income tax when used for qualified higher education expenses4 |
No | Earnings grow tax deferred and are free from state income tax when used for qualified education expenses4 | Interest income is free from state income tax |
| What is the maximum investment limit per beneficiary? | Varies by plan; generally over $200,000 | No limit | Total of $2,000 per beneficiary per year (rollover exceptions may apply) | For Series EE Bonds, annual purchase limit per person is $5,000 issue price (paper) and $5,000 issue price (electronic); for Series I Bonds, annual purchase limit per person is $5,000 issue price (paper) and $5,000 issue price (electronic) |
| Can you change beneficiaries? | Yes, to another eligible member of the beneficiary's family | No, assets are considered irrevocable gift to the child | Yes, to another eligible member of the beneficiary's family | Only bond owner can perform change (under certain circumstances) |
| What is its impact on financial aid/weighting in financial aid formula? | Lower weighting: Counts as parent's asset (if account owner); not reported if dependent student is account owner6 | Higher weighting: Counts as student's asset | Lower weighting: Counts as parent's asset (if account owner); not reported if dependent student is account owner6 | Counts as bond owner's asset |
| What is the federal gift tax treatment? | Contributions treated as completed gifts; As of 1/1/09, may apply $13,000 ($26,000 if married filing jointly) in contributions as annual gift exclusion or, for five-year election, up to $65,000 ($130,000 if married filing jointly) without gift tax impact7 | Transfers treated as completed gifts; may apply $13,000 ($26,000 if married filing jointly) as annual gift exclusion | Contributions treated as completed gifts (subject to the $2,000 annual contribution limit) | Not treated as gift in a parent's name |
1 Uniform Gift to Minors Act/Uniform Transfers to Minor Act.
2 The tax exclusion begins to be reduced with a modified adjusted gross income of $95,000 (single)/$190,000 (married) and is eliminated for adjusted gross incomes of $110,000 and above (single)/$220,000 and above (married). Married couples must file jointly to be eligible for the exclusion.
3 In 2009, the tax exclusion begins to be reduced with a modified adjusted gross income level of $69,960 (single)/$104,900 (married) and is eliminated for adjusted gross incomes of $84,950 and above (single)/$134,900 and above (married). Married couples must file jointly to be eligible for the exclusion.
4 Earnings on non-qualified withdrawals are subject to federal income tax and may be subject to an additional 10% federal tax, as well as state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements.
5 First $900 of child's unearned income is tax-exempt, and unearned income over $1,800 is taxed at parents' rate if child is below age 18, or a full-time student under age 24 (in most cases), as of December 31, 2008.
6 Beginning with the 2009-2010 academic year, counted as asset of parent, whether account owner is parent or dependent student.
7 In the event the contributor does not survive the 5-year period, a pro-rated amount will revert to the contributor's taxable estate.
Note: The information presented in this chart is not intended to constitute, nor does it constitute, legal or tax advice. You should consult your financial or tax advisor about the impact of these investments to your individual situation.