Investing in the Future

Earning a college degree is growing more imperative to ensuring long term financial stability and success. Paying for this degree can be a daunting task for anyone, especially with the rising costs associated with higher education. How can we secure the educational future of our children or grandchildren? The following are some options to consider for college savings:

The Coverdell Educational Savings Account or Coverdell IRA (formerly known as the Educational IRA) is a tax-advantaged account established for a specific beneficiary. The maximum contribution per year for each beneficiary is $2,000. The account grows tax free and distributions for “qualified educational expenses” are also tax free. Qualified educational expenses include elementary and secondary education expenses (K-12) in addition to college and technical schools.

Section 529 Plans are state-sponsored college saving plans. Each state has it’s own savings plan and set its own guidelines; some states may also require residency while others may not. The Georgia 529 Plan allows distributions for the beneficiary student’s college expenses even if the college is outside of Georgia. Although there are gift tax considerations, you can contribute up to $235,000 to the GA 529 Plan. Tax on the account’s growth is deferred until it is used for educational purposes. The account grows tax free and distributions for “qualified educational expenses” are also tax free. Unlike the Coverdell IRA, qualified educational expenses for 529 Plan funds can only be used for the tuition, fees, books, and necessary supplies/equipment required for enrollment to postsecondary schools.

Uniform Transfer to Minors Act (UTMA) Accounts, commonly known as custodial accounts, are created under the name of the intended beneficiary along with a parent, grandparent, or other guardian acting as custodian. At age 21, the beneficiary will have unlimited access to the account. Although the income from the account is not tax free, the taxation is based on the tax rate of the student. Unlike the tax favored accounts mentioned above, distributions from the UTMA are not limited. The biggest negative for college financing is that custodial accounts are an asset of the student and adversely affect other programs that are needs based such as grants and loans.

It is important to weigh the advantages and disadvantages of each savings option to determine which best fits your student’s situation. No matter which option or options you choose, the most important step is implementing a plan. Invest in the educational futures of your loved ones and begin saving now!

Bryson Law Firm: Suwanee, Georgia. Attorney Richard Bryson has over 15 years experience with estate law, elder law, estate planning, probate avoidance, wills and trusts, tax planning, asset protection, personal injury, business formation, and Medicaid and VA planning. Contact our Gwinnett County law firm at 404-909-8842.