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Which college savings plan is right for you?
Which college savings plan is right for you?
By Bankrate.com If you're contemplating an education savings plan but are confused about which is best for you, click on the different plans to discover the advantages and drawbacks of each. http://www.bankrate.com/nltrack/news....asp?caret=57a 4 plans for financing education 529 plans Coverdell Savings bonds Custodial accounts Overview: Categorized as either prepaid or savings, 529 plans are available in every state. The donor stays in control of the funds (with few exceptions) and determines when the beneficiary receives the money. Pros: Earnings grow tax deferred, and withdrawals are tax-free as long as the money is used for higher education. You can contribute substantial amounts to the 529 plan, more than $230,000 per beneficiary in many states. There is no income limit for contributors. Contributions qualify for the annual gift tax exclusion of $12,000 per person. However, you can donate up to $60,000 in a single year and elect to treat it as if it were made over five years for gift-tax purposes. This gives some donors the ability to remove assets from their estate while still maintaining control over the contribution. Plan assets are managed by the state treasurer's office or an outside investment company. You can change the investment every year or roll it over to a different state's program. If the account has grown beyond what's needed or the original beneficiary has decided not to go to college, it can be transferred to another qualifying beneficiary at any time. Cons: There is a 10 percent penalty and taxes on earnings for nonqualified distributions. |
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