College/Education Investing

Tools to use for College Savings

Qualified State Tuition Programs (Section 529 Plans)

Section 529 Plans are authorized under Internal Revenue Code Section 529 and are sponsored by the individual states. These programs allow parents, grandparents and non-relatives to contribute money to an account of which the child is the beneficiary. Funds withdrawn from this type of plan to pay for qualified education expenses are free from federal income tax. The child may attend almost any accredited college, university, or trade school regardless of location.

Advantages of 529 Plans:

  1. These plans have no income restrictions
  2. Unlike UTMA’s and UGMA’s the donor retains control of the funds
  3. For financial aid purposes, the investments within the account are considered a parental asset
  4. Funds may be transferred, if necessary, to certain family members of the beneficiary without penalty

Disadvantages of 529 Plans:

  1. Funds will be assessed a 10% penalty if not used on qualified educational expenses
  2. Plans limit investment options and frequency of investment exchanges
  • Please carefully consider the investment objectives, risks, charges, and expenses associated with municipal fund securities before investing.  More information about municipal fund securities is available in the issuer’s Official Statement.  You may obtain an Official Statement from the issuer or your Registered Associated Person.  Please read the Official Statement carefully before investing.
  • Depending on your state of residence, there may be an in-state 529 Plan that provides tax and other benefits not available through non-resident state plans.  Before Investing in any state’s 529 Plan, you should consult your tax advisor.

Uniform Gift to Minors Act (UGMA) and Uniform Transfer to Minors Act (UTMA)

UGMA’s and UTMA’s are minor accounts owned by the minor. They differ from the 529 Plan as they are not restricted to educational expenses.

Advantages of UGMA’s and UTMA’s:

  1. No restrictions on investments or frequency of exchanges
  2. Can be used to fund other expenses such as a car, housing, etc. without incurring a withdrawal penalty
  3. Income is tax free up to certain amount and then taxed at minor’s tax rate

Disadvantages of UGMA’s and UTMA’s

  1. Funds become available to minor at legal age regardless of responsibility level
  2. Because the account is considered the minor’s account, financial aid assumes a great contribution towards college funded verses a parental asset
  3. Growth of investments are not completely tax free

Contact us to set up a meeting to discuss your individual needs. Phone 707-446-7623,