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Although most donors choose to take advantage of the many benefits that 529 Plans offer, other vehicles for college savings are available, primarily Education Savings Accounts, or "ESAs" (Coverdell Education Savings Accounts formerly known as Education IRAs), and accounts established under the Uniform Gift to Minors Act/Uniform Transfers for Minors Act – UGMA/UTMA.
|Investment and Insurance Products:
• Are Not insured by the FDIC or any other federal government agency
• Are Not deposits of or guaranteed by a Bank or any Bank Affiliate
• May Lose Value
|Eligibility||Full contributions allowed for individuals without any income restrictions||Full contributions allowed for individuals||Accounts must be set up for a minor. No income adjustments|
|Control/ Ownership||Owner has control which extends beyond age 18||Assets are in child's name, although donor has control until child reaches age 30||Irrevocable gift. Custodian has fiduciary responsibility to child but only controls assets until minor reaches age 18 or 21, depending on the account agreement|
|Contribution Limit||Individuals may give up to $70,000 ($140,000 for married couples) in first year (cash only), as a five-year forward gift||Up to $2,000 annually per donor and $2,000 annually per beneficiary under age 18, unless the beneficiary has special needs (cash only)||Maximum per donor per year is $13,000, subject to annual gift-tax exclusion. Amounts over $13,000 may be subject to gift tax, or count toward grantor's lifetime gift tax exclusion|
|Tax Advantages||Earnings are free of federal income tax, as are withdrawals used for qualified higher education expenses||Only the qualified withdrawals are free from federal income taxes||Various tax rates are computed on earnings, based on the age and status of the child|
|Investment Control||Owner controls initial and ongoing investment selection based on plan vendor's investment choices||Donor may direct investments||Custodian directs investments with fiduciary responsibility to minor|
|Investment Options||Availability based on each state's plan||May include stocks, bonds, mutual funds. Investment rules are similar to IRAs||Not limited to only cash contributions. Other types of assets are allowed to be transferred into this account|
|Distributions||Distributions for qualified expenses are tax-free; taxes and penalties must be paid on gains if distributions are not used for qualified educational expenses||Distributions may be used for qualified expenses of primary, secondary, or post-secondary expenses, and for public, private, or religious schooling||Distributions must be used for the child's benefit but can cover any child-related expenses|
|Financial Aid Eligibility||Assets treated as belonging to parent or owner||Assets treated as belonging to parent or owner||Assets treated as belonging to the child|
|Gifting/Estate Tax Advantages||Gift tax exemption allows donors to allocate up to five years of $13,000 gifts up front for a total of $65,000, removing a significant amount of money from the owner's estate||Estate tax savings are also present since contributions are treated as completed gifts to the child. However, taxes may apply above the $13,000 gift tax exemption limit||Contributions are treated as completed gifts to the child. However, assets are included in donor's estate if donor dies while serving as custodian Key Differences continued|
Important Notice: City National Securities, as a matter of policy, does not give tax, account, regulatory or legal advice. The effectiveness of the strategies presented in this document will depend on the unique characteristics of your situation and on a number of complex factors. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations. You should consult with your other advisors on the tax, accounting and legal implications of the proposed strategies before implementation.
City National Securities provides advice on several pre-screened programs to help you implement this tax-advantaged technique. For further information, please contact us at (800) 280-1464.