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Compare College Savings Options

There are many options available to help you save for higher education expenses. Our comparison chart outlines the key differences between 529 plans, Coverdell Education Savings Accounts and UGMA/UTMA Accounts. Your Financial Advisor can help you sort through the choices to come up with the best decision for your needs and budget.

Comparison Chart

 The IAdvisor 529 PlanCoverdell ESAUGMA/UTMA
Control of accountPlan owner (usually a parent) has control throughout the life of the accountTrustee or custodian has control until age of majority, then assets belong to childCustodian has control until age of majority, but assets always belong to child
Uses and restrictionsQualified expenses at eligible institutions1Qualified expenses at public or private primary, secondary, or post-secondary schoolsNo specific educational requirements; funds must be used for benefit of minor
Contribution limitAllows $420,000 per beneficiary$2,000 per minor child per year (2018)Unlimited
Income eligibilityNo limitsPhases out for single filers at $95,000 to $110,000; for joint filers $190,000 to $220,000No limits
Age restrictions for beneficiaryNoneCan only contribute until child reaches 18 and must withdraw funds before age 30Can only contribute until child reaches age of majority
Change in beneficiaryCan be transferred to another eligible member of the family at any time2Can be transferred to another eligible family member(< 30 yrs. old)Not permitted since assets are owned by minor child
Federal income tax treatmentEarnings and appreciation in value are free from federal income tax if used for qualified higher education expenses3Federal income tax-free if used for K–12 and qualified higher education expenses before beneficiary reaches age 30
 
Earnings and gains taxed to minor; first $1,000 of unearned income is tax exempt; unearned income over $2,100 for certain children through age 24 is taxed at parents' rate
Federal estate tax treatmentValue removed from account owner's gross estateValue removed from owner's gross estateValue removed from contributor's gross estate 
Federal gift tax treatmentContributions treated as completed gifts, subject to $15,000 annual exclusion, or up to $75,000 with 5-year accelerated election ($30,000/$150,000 respectively for spouses who gift split)4Contributions treated as completed gifts; 2018 annual contribution limit is $2,000Transfers treated as completed gifts, subject to $15,000 annual gift exclusion
Federal financial aidCounted as parental asset if parent is account ownerCounted as asset of trustee or custodian, typically the parent
 
Counted as student's asset
Federal penalties on nonqualified withdrawalsOrdinary income taxes plus a 10% IRS penalty on earningsOrdinary income taxes plus a 10% IRS penalty on earningsNone
State tax deductionUp to a $3,319 deduction (adjusted annually for inflation) from Iowa taxable income per beneficiary per year (Adjusted annually for Inflation)5NoneNone
State penalties for Iowa taxpayersIf withdraws are not qualified, the deduction must be added back to Iowa taxable incomeNoneNone

1Eligible institutions include all post-secondary institutions that participate in the Federal Financial Aid Program.

2Please see the Program Description for definition of a “family member.”

3Non-qualified withdrawals may be subject federal and state taxes and an additional federal 10% tax.

4In the event the contributor does not survive the five-year period, a pro-rated amount will revert back to the contributor’s taxable estate.

5If withdrawals are not qualified, the deductions must be added back to Iowa taxable income.

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