College Savings Plans
Developing a College Savings Plan for Your Child
The younger your child is, the more difficult it can be to fully understand how to save for college. But with education expenses often starting as early as elementary school, it's clear that the sooner you start saving, the better. Even if you feel like you've already fallen behind, it's not too late -- what you do today to contribute to your college savings plan can have a great impact on your child's education.
Get a Head Start on College Financial Planning
According to the College Board, the average cost for tuition, fees, and room and board for a public university in 2014 is $19,598; the same expenses for a private university are $42,170.*
Too often, these rising college costs stand between your children and their dreams for the future. Even if they excel in school, your children still might not be able to attend the college of their choice. Not having a college financial plan often forces parents and students to make a difficult choice -- take on the burden of student loan debt or avoid college altogether.
Choose a College Savings Plan That's Right for You
The chart below compares some of the most widely used education funding alternatives. Your Financial Advisor can help you decide which ones work for your unique situation.
|College Savings Plan Product Features||529 College Savings Plans1||Coverdell Education Savings Account2||Custodial Accounts (UGMA/UTMA)3||Parent-Owned Taxable Brokerage Accounts|
|Income limitations for participation||None||Single filers: $95,000- $110,000; joint filers: $190,000-$220,000||None||None|
|Control of the account||Account owner||Custodian controls until beneficiary turns 30||Custodian controls until age of termination||Account owner|
|Annual contribution limits||$14,000 per beneficiary ($28,000 for a married couple)4||$2,000 per designated beneficiary younger than 18||$14,000 ($28,000 for couple) without being subject to federal gift tax treatment||None|
|Current taxation of earnings||None||If child is younger than 19, or a full-time student under age 24, the "kiddie tax" applies||Taxed at the owner's rate|
|Qualified distributions are federal-tax-free||Yes||Yes||N/A||N/A|
|May have state tax benefits||Yes||Yes||No||No|
|Taxation/penalty for withdrawals for nonqualified expenses||Earnings portion of nonqualified withdrawals is taxed as ordinary income to the plan participant and may be subject to a federally mandated 10% penalty (earnings only). Penalty-free withdrawals are permitted in the event of scholarship or death or disability of the beneficiary.||N/A||N/A|
|Investment alternatives||A choice of portfolios managed by professional fund managers||Owner (custodian) chooses investments|
|Can be used for college expenses||Yes||Yes||Yes||Yes|
|Can be used for primary and secondary school expenses||No||Yes||Yes||Yes|
|Can change beneficiaries||Yes||Yes||No||N/A|
Please consider the investment objectives, risk, charges and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your Financial Advisor. Read it carefully before you invest.
*Source: "Trends in College Pricing 2013.” Copyright 2013 by collegeboard.org, Inc. Reprinted with permission. All rights reserved. www.collegeboard.org.
Learn More About Your College Savings Options
For more information about college savings options, contact your Financial Advisor. You can also learn more about:
1College savings plans offered by each state differ significantly in features and benefits. The optimal plan for you depends on your specific objectives and circumstances. In comparing plans, please consider each plan's investment options, fees and state tax implications. As with all tax-related decisions, consult with your tax advisor.
2Qualified Coverdell Education Savings Account distributions are not subject to state and local taxation in most states.
3Earnings on custodial accounts may be subject to the "kiddie tax" if the child is younger than 19 years old. If the child continues to be a full-time student, the rules apply until he or she turns age 24. Generally, earnings on the account are taxable at the parent's highest marginal rate.
4$70,000 per beneficiary in the first year of a five-year period to avoid gift tax consequences ($140,000 per married couple)
Wells Fargo Adviors does not provide tax or legal advice. Be sure to consult with your own tax and legal advisors before taking any action for education funding that may have tax consequences.
Your Financial Advisor can help you determine which education funding program is appropriate for you.