Smart529 Select

College Savings Choices


You have several choices when you are determining your college savings strategy.  The following chart highlights the most popular choices and the tax advantages of each.

View definitions of the savings options listed below.

  529 College Savings Coverdell UGMA/UTMA Mutual Fund Roth IRA Savings Bond Certificate of Deposit
How used? Qualified college tuition and fees Higher education Any expense that benefits the child Any purpose Retirement investment Any purpose Any purpose
Are contributions state tax deductible? Varies by state No No No No No No
How are withdrawals treated for federal tax purposes?

Withdrawals for qualified higher education expenses are federal income tax free.

Non-qualified withdrawals are taxable as ordinary income to the extent of earnings and may also be subject to a 10% federal income tax penalty. Such withdrawals may have state income tax implications.

Withdrawals for qualified higher education expenses are federal income tax free Under age 14, withdrawals over $1,500 are taxed at parents' rate. Age 14 and over, taxed at child's rate. Under age 14, first $850 tax-free. Next $850 taxed at child's rate. Anything over $1,700 taxed at parents' marginal rate. Age 14 and over, amount above $850 taxed at child's rate. Early distributions are subject to federal income tax on the earnings, but the 10% penalty tax may be waived if distribution does not exceed qualified education expenses. Taxed on earnings when income is received Taxed on earnings when income is received
Are there state taxes on earnings? Varies by state Varies by state Varies by state Varies by state Varies by state Varies by state Varies by state
Are there federal taxes on earnings? No, if used for qualified expenses No, if used for qualified expenses Varies Yes No, if used for qualified expenses Yes Yes
  529 College Savings Coverdell UGMA/UTMA Mutual Fund Roth IRA Savings Bond Certificate of Deposit
Are there income limitations? No Yes No No Yes No No
What are the investment options? Sub-accounts and portfolios of varying risk Variety of securities Variety of securities Funds consisting of variety of securities Variety of securities Funds consisting of variety of securities CDs with various terms and amounts
Who controls the assets? Account owner Account owner Custodian until the beneficiary is age of majority Account owner Account owner Account owner Account owner
How does the product impact financial aid eligibility? Considered an asset of the account owner Considered an asset of parent, if account owner Considered an asset of the child Considered an asset of the account owner Considered an asset of the account owner Considered an asset of the account owner Considered an asset of the account owner
Are there contribution limits? Varies by state. SMART529 is $265,620 per beneficiary Yes, $2,000 per year. Not applicable Not applicable Not applicable Not applicable No

Savings Plans Definitions:

529 College Savings Plan: A tax-advantaged college savings program.

Coverdell Education Savings (ESA): A trust or custodial account set up solely for the purpose of paying qualified education expenses. The designated beneficiary receives tax free distributions to pay qualified education expenses.

UGMA/UTMA Account: Uniform Gifts to Minors Act/Uniform Transfers to Minors Act – Legislation that permits a gift of money or securities to be given to a minor and held in a custodial account that is managed by an adult for the minor’s benefit. By transferring income and capital gains to a minor’s name, they are taxed at a lower rate.

Mutual Fund:  A company that brings together money from many people and invests it in stocks, bonds or other assets. Each investor in the fund owns shares, which represent a part of these holdings.

Savings Bonds:  A registered, non-callable, non-transferable bond issued by the U.S. Government.  They cannot be bought and sold after they are purchased from the government; therefore, there is no secondary market.  Face values range from $50 to $10,000.

Certificates of Deposit: A deposit made with a bank, credit union, or savings and loan. It is a specified amount that is deposited for a certain period of time and a set interest rate.

Roth IRA: An individual retirement account where contributions are not tax deductible, but qualified distributions are tax free. There are income maximums and maximum annual contributions.

MUN 119866

Updated 12/08/2015