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Coverdell Savings Accounts (formerly Education IRA’s), UTMA accounts and some 529 Plans, are some of the ways to save for higher education. But which one is best for your scenario? A few months ago I wrote about the great new benefits of the 529 plan. This is a great choice but may not be the best for everyone.
The most popular method for years has been the custodial account or UTMA in Pennsylvania. This allows money to be invested in many different ways for the child. There are some tax implications based on gains within the account, your personal tax situation and the age of the child. Keep in mind, this account is in the child’s name with a custodian but she has rights to these funds at the age of majority, which is 21 in Pennsylvania.
The 529 Plans are now in the forefront. The income tax treatment is better than before, the contribution limits are very high and the control lies with the owner, which is typically the parent. The Coverdell Savings Account is becoming the “odd man out”. It has nice tax benefits but also has fairly low limits on the total amount one can invest annually.
As you can see, the good news is that there are choices available. Which one is best for you is determined by your personal objectives, beliefs and tax consequences. Please consult a financial advisor and/or a tax advisor for what is best for you and your children.
02/07 - BACK
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