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.