Education Planning Services
There are currently three types of “education” savings accounts; 529 Plans, Coverdell / Education IRA’s and Uniform Gift to Minors Act accounts. Below is a brief description of each. Please contact us for more detailed information.
529 Plans: The 529 Plan is frequently called the Grandparents Plan because it permits them to contribute to their grandchildren’s college education, and reduce their estate asset value at the same time. If they should need the use of those funds, they can withdraw them from the plan; otherwise the grandchildren may use the money only for qualified higher education expenses. Premature withdrawals result in tax consequences. Please consult your tax professional for details.
Coverdell / Education IRA: Since many of our clients want to save for elementary and/or secondary education expenses as well, we frequently recommend a combination of an Education IRA (Coverdell Education Savings Account) and a 529 Plan. The Coverdell IRA can be used for elementary, secondary or college education, but without the benefit of reducing estate values. There are some income restraints and penalties for over contributing, so be sure to check with us (or your tax professional) to see what may apply to your situation.
Financial Resource Associates’ President, Elaine Kiernan, is certified as a 529 Plan Specialist. She will formulate the most suitable education savings plan for your specific needs.
Contribution Limits
SAVINGS VEHICLE |
CONTRIBUTION LIMIT |
Coverdell ~ Education IRA |
$2,000/Year |
Section 529 Plan |
$200,000+ per beneficiary, per plan, per life (States differ in their rules. Gift taxes may apply. Please contact your tax advisor for further details) |
Uniform Gift to Minors’ Act or UGMA
The purpose of having a UGMA is to provide future financial benefit to a minor child, while at the same time providing a limited tax benefit to the custodian, usually a parent or a grandparent. These accounts have historically been established to fund future college expenses. One glaring disadvantage of this type of account is that the minor child, upon reaching the age of majority, can legally take possession of the assets in the account, and use them for whatever purpose they want (which may be radically different than what the custodian intended). A UGMA may be an ideal way to save for college after the 529 Accounts and Coverdell IRA’s have been fully funded.
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2161 Delaware Avenue Suite C Santa Cruz, CA 95060 |
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