Available College Savings Plans - dummies

Available College Savings Plans

Part of 529 and Other College Savings Plans For Dummies Cheat Sheet

Do your research when you’re deciding on a college savings plan — not all savings plans are created equal. What works best for your neighbor may not be the best choice for you. Listed below are some college savings plans and the major differences that you’ll find among them:

Savings Vehicle Tax Issues Possible Contributors Possible Uses Taxed Individual (if Applicable)
529 plans No tax paid on interest earned until distributions are made.
Currently, distributions used for qualified educational expenses
are tax-exempt.
No relationship or income-limitation test. Any expenses you choose. However, distributions used to pay for
nonqualified expenses are subject to income tax on the earnings
portion, plus a 10% penalty.
Designated beneficiary.
Coverdell accounts No tax paid on interest earned until distributions are made.
Currently, distributions used for qualified educational expenses
are tax-exempt.
No relationship test. Must satisfy income-limitation test. Any expenses you choose. However, distributions used to pay for
nonqualified expenses are subject to income tax on the earnings
portion, plus a 10% penalty.
Designated beneficiary.
Series EE and Series II savings bonds No tax paid on interest earned if redeemed bonds are used for
qualified educational expenses.
Must satisfy relationship and income-limitation tests to
qualify for tax-free treatment of interest upon redemption of
bonds.
Any expenses you choose. However, only the portion used for
qualified educational expenses is tax-free.
Bond owner.
Personal investment accounts Tax paid yearly on income earned within the account. No
additional tax assessed when you take distributions for any
reason.
You contribute to your own account or may make gifts into
someone else’s.
All expenses. Account owner.
Trust accounts Tax paid yearly on income earned within the account. No
additional tax assessed when you take distributions for any
reason.
Trust grantor (the donor) only. All expenses. In years in which distributions are made, person to whom the
distribution is made. In all other years, the trust pays the
tax.
Retirement accounts Tax deferred until you take distributions. Early distributions
may also be subject to an additional penalty.
Account owner only. Any expenses you choose. However, distributions used to pay for
nonqualified expenses are subject to income tax on the earnings
portion, plus a 10% penalty.
Account owner.
Home equity No tax owed if you refinance your house and use some or all of
your equity to pay for college expenses. If you sell your house,
you may be liable for a capital gains tax in some situations.
Anyone may buy you a house or make payments against an existing
mortgage; generally, only the homeowner actually does.
All expenses. Homeowner.