It pays to have a plan.
Planning for college is the first step toward affording it. You'll be amazed how regular contributions to a CollegeChoice 529 account could potentially add up to a significant college nest egg over time.1
First, what are your options?
While only 529s give you full control over your account and have no income limits, there are other college saving vehicles you can consider:
Education Savings Programs at a Glance
|
|
CollegeChoice 529 Direct Savings Plan |
UGMA/UTMA2 |
Coverdell Education Savings Account (ESA) |
|
Income limitations |
None |
None |
Yes, (adjusted gross income limits) |
|
Maximum investment limit per beneficiary |
$450,000 |
No limit |
Total of $2,000 per beneficiary per year (rollover exceptions may apply) |
|
Federal income tax impact |
Earnings grow tax deferred; withdrawals are free from federal and state taxes if used for qualified higher education expenses3 |
Income and earnings are taxable to the child |
Earnings grow tax deferred; withdrawals are free from federal and state taxes if used for qualified higher education expenses3 |
|
Indiana state income tax impact |
Indiana taxpayers are eligible for a state income tax credit of 20% of contributions to their CollegeChoice 529 account, up to $1,500 credit per year.4, 5 |
No Indiana state tax credit |
No Indiana state tax credit |
|
Federal gift tax impact |
- Contributions treated as completed gifts; may apply $18,000 contribution ($36,000 per married couple) for annual gift tax exclusion |
Transfers treated as completed gifts; may apply $18,000 ($36,000 per married couple) for annual gift tax exclusion |
Contributions treated as completed gifts; may apply $18,000 ($36,000 per married couple) for annual gift tax exclusion |
|
Impact on federal financial aid |
Generally treated as belonging to the account owner, not the student, so they have less of an impact on federal financial aid eligibility than many other types of college savings methods. If the account owner is: (1) a dependent student, 529 plan assets are considered parental assets; (2) an independent student, 529 plan assets are considered assets of the student and can have a larger impact6 |
Counts as student's assets |
Counts as parent's asset (if parent is the account owner); not reported if dependent student is the account owner6 |
|
Who controls the account? |
Account owner |
Custodian; then child, when he/she reaches age of majority |
Account owner or minor at legal age (depending on plan) |
|
Can you change beneficiaries? |
Yes, to another member of the beneficiary's family |
No, assets are considered irrevocable gifts to the child |
Yes, to another member of the beneficiary's family |
|
How can you use the proceeds? |
Any eligible post-secondary educational institution |
Almost any use for the benefit of the child |
Any eligible K-12 school or post-secondary educational institution |
|
Are qualified withdrawals taxable? |
Withdrawals are free from federal and state taxes if used for qualified higher education expenses3 |
Income and capital gains are taxable to the minor |
Withdrawals are free from federal and state taxes if used for qualified higher education expenses3 |
|
Penalties for non-qualified withdrawals? |
Withdrawn earnings subject to income tax and 10% federal penalty tax3 |
N/A |
Withdrawn earnings subject to income tax and 10% federal penalty tax3 |
1 A plan of regular investment cannot assure a profit or protect against a loss in a declining market.
2 Uniform Gift to Minors Act/Uniform Transfers to Minors Act.
3 Earnings on non-qualified withdrawals are subject to federal income tax and may be subject to a 10% federal penalty tax, as well as state and local income taxes. The availability of tax or other benefits may be contingent on meeting other requirements. (Please refer to IRS Publication 970, "Tax Benefits for Education.")
4 This credit may be subject to recapture from the account owner (not the contributor) in certain circumstances, such as rollover to another state's 529 plan or non-qualified withdrawal.
5 In the event the donor does not survive the five-year period, a pro-rated amount will revert to the donor's taxable estate.
6 For complete information about financial aid eligibility, you should consult with a financial aid professional and/or the state or educational institution offering a particular financial aid program, since regulations often change.
