College Savings Comparison

 
529 Savings plans

Roth individual

retirement account
Uniform trust/ gift to minors act

account (utma/ugma)
Coverdell education

savings account
Life insurance


SOC7638 1019
 
 
 
 
 


Description
State sponsored, tax-advantaged
savings vehicles for qualified
higher education expenses.
Tax-advantaged retirement
vehicle that may also be
used to fund qualified higher
education expenses.
Custodial account managed for
the benefit of a minor. The account
is an irrevocable transfer of assets
in a child’s name. (Cannot recover
the funds placed in the account.)
Tax-advantaged savings vehicle
for qualified K-12 and higher
education expenses.
Life insurance policies must
be those which are considered
“permanent” and which build
cash value as premiums are paid.
Using a policy’s loan provision to
create cash flow will avoid any
tax liability on the transaction.

Income Limits
None
Yes, subject to Modified Adjusted
Gross Income (MAGI) limitations:
Individuals: MAGI must be less
than $132,000. Married, Joint:
MAGI must be less than $194,000.
Other restrictions apply.
None
Yes, subject to Modified Adjusted
Gross Income (MAGI) limitations:
Individuals: MAGI must be less
than $110,000. Married, Joint:
MAGI must be less than $220,000.
None

Age Requirements
for Account Owner
or Beneficiary
None
None
Account ownership transfers to
the minor upon reaching the
age of majority, usually between
ages 18-21, or the ownership
age specified when the trust was
set-up.
Contributions: Beneficiary must
be under age 18 unless a special
needs beneficiary. Distributions:
Must be completed by the time the
beneficiary reaches age 30, unless
a special needs beneficiary
Policy owner must be 18-21
years old depending on the
state of issue, policy type, and
insurance company.

Ability to Change
the Beneficiary
Yes, at any time, to another
qualified member of the current
beneficiary’s family, or yourself.
Yes, at any time. But there
are varying limitations and
tax liabilities depending on
your selection.
No
Yes, but only to another member
of the current beneficiary’s family
under the age of 30, or a special
needs beneficiary of any age.
Yes, but irrelevant when utilizing
cash value.

Maximum
Contribution Limit
$400,000 cumulative for all
accounts for the same beneficiary.
Maximum limit is $5,500 ($6,500
for taxpayers 50+) subject to
the MAGI limitations. Excess
contributions are subject to a 6%
excise tax.
Unlimited
The total amount of all
contributions to a single
beneficiary cannot exceed
$2,000/year. Excess contributions
are subject to a 6% penalty
Single-premium limit based on
several factors including age
of policy owner and face value
of the policy. Note: Modified
Endowment Contract (MEC) rules
dictate these factors.

State Tax
Deduction for
Contributions
Yes, for taxpayers in the
applicable state.
No
No
No
No

Federal Income
Tax Treatment
of Earnings
Tax free while in the account
and used for qualified, higher
education withdrawals.
Tax exempt while in the account.
Earnings and gains taxed to minor;
first $1050 of unearned income is
tax exempt; unearned income over
$2,100 for certain children under
age 24 is taxed at rates for estates
and trusts.
Tax free if the distributions do not
exceed the beneficiary’s qualified
education expenses for the year
Taxable, unless taken as part of a
policy loan.

Annual Limit for
Gift Tax Exclusion
$15,000 single/$30,000 married
couple per beneficiary in a
single year without federal gift
tax consequences. Multiple
year options are available but
restrictions apply.
Not applicable.
$15,000 single/$30,000 married
couple per beneficiary in a
single year without federal gift
tax consequences. Multiple
year options are available but
restrictions apply.
The maximum contribution limit
is below the annual limit for gift
tax exclusion.
Not applicable.