Education Funding

529 Plans
Qualified state tuition programs or 529 College Savings Plans are designed to help people save for the cost of higher, and in some cases, secondary education. 529 College Plans provide several key benefits for investors, including tax savings, flexibility in selecting portfolios management, and offer the ability to control dispersions to beneficiaries. Unlike UGMA/UTMA accounts, the parents or grandparents make the decisions on whether the funds will be withdrawn. They are free to change beneficiaries at any time.

Although the 529 Plans are established separately in each state, 529 Plans can be used at any accredited post-secondary school in the U.S. Contributions accumulate tax-free in diversified professionally managed portfolios made up of mutual funds and are distributed free of federal and often state taxes when used for qualified educational expenses. 529 Plans offer a very high $250,000 limit than available with other options.

Let Dugan & Lopatka help you map out your education saving program.

UGMA/UTMA
The Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA) established a simple way for parents to transfer stocks, bonds, mutual funds, annuities, real estate, fine art, patents, copyrights and life insurance policies to their children.

The parent establishes a custodian account and appoints a custodian (trustee). The parent then irrevocably donates the assets to the trust and the assets technically belong to the minor although controlled by the custodian until the minor reaches termination age (18 or 21). The custodian has the fiduciary responsibility to manage the assets in a prudent manner for the benefit of the minor. The income from the assets is taxable to the minor at their tax rate not the parents (significant tax savings).

Coverdell Education Savings Accounts
A Coverdell ESA is a trust or custodial account created to pay the qualified education expenses of a designated beneficiary. Parents, grandparents, other family members, friends and children themselves may deposit up to $2,000 per year for each beneficiary under 18 years old provided the total contribution does not exceed the $2,000 limit. The money contributed grows tax-free until distribution and the beneficiary will not owe any tax if withdrawn for qualified higher education expenses at eligible educational institutions.

The amounts contributed to one beneficiary can be rolled into an account for another beneficiary. The Hope Scholarship Credit and Lifetime Learning Credit may not be claimed for a student's expenses in a taxable year in which the student takes a tax-free withdraw from a Coverdell ESA.

If you want to learn more about Coverdell ESA or other educational funding options, give us a call.

Contribution Rules:

• Max $2,000/Year for any one beneficiary

• AGI phase out begins at $190,000 (for the contributor)

• Beneficiary must be under 18 years old.  Age exceptions for special needs beneficiaries

• Must be cash

• Must be made by due date of contributor’s return