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College Savings Vehicles Compared

 

529 Plans

Coverdell ESAs

U.S. Savings Bonds

Custodial Accounts

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 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 also generally exempt from state income tax)

No

Penalty if funds not used for qualified education expenses

Yes, a 10% 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 plans: typically an annual maintenance and administration fee, and investment expenses based on a percentage of total account value
Prepaid tuition plans: typically an enrollment fee and administrative fees

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

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.

The availability of the tax and other benefits mentioned above may be conditioned on meeting certain requirements. U.S. savings bonds are guaranteed as to the payment of principal and interest. The remaining types of college savings vehicles discussed are not guaranteed (except for 529 prepaid tuition plans) and are more risky.


Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2013 Tracking #: 1-161156

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances.

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.

 

 

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