College savings
As the children you love continue to grow, take the steps necessary to help them succeed. Prepare them for a bright future with a college savings plan. We can help you invest in them and their future.
College Savings Calculator
Click HERE to get personalized insight into how a tax-favored savings option, such as a 529 College Savings Plan, can help you save for college. Input your college funding goals, examine your total projected costs and estimate the monthly amount you need to save to meet your objective.
529 College Savings Plans
529s are a type of investment account that can be used for education expenses. These are usually sponsored by a state, and there may be tax advantages to using your state's 529 plan.
Who Can Open an Account?
An individual, trust, certain legal entities, a custodian under a state's UGMA or UTMA statute, or a trustee of a trust.
There are no income or residency requirements.
Who Can Be a Beneficiary?
A future student, current student, including the account owner, without age restrictions.
The beneficiary must have a valid Social Security number or taxpayer identification number.
Each account can only have one beneficiary.
Who Can Make Contributions?
Parents, grandparents, or other relatives can contribute on behalf of the beneficiary. All funds contributed to the account are controlled by the account owner.
Gifting Limits
There are annual gifting limits for these accounts, but 529s offer an interesting exception. You can gift an entire 5 years worth of gifts in one deposit and spread it out over the next 5 years of tax returns.
For example, a single person could gift $85,000 ($17,000 x 5 years) in a single deposit into a 529 plan and claim $17,000 per year on their taxes.
UTMA/UGMA
UTMA (Uniform Transfers to Minors Act) and UGMA (Uniform Gifts to Minors Act) are custodial accounts set up for minors. These accounts act similar to trusts with the minor as the beneficiary. Almost any financial asset (stocks, bonds, mutual funds) can be deposited into these accounts. Once the beneficiary reaches the age of majority, the assets become theirs to do with as they please.
Deposits into these accounts are irrevocable elections meaning they immediately become the property of the minor.
Tax benefits may include gifting an appreciated asset to the minor, resulting in the capital gain being calculated off of the minor's income, not the grantor.
Other Ways to Save for Minors
There are many ways to save for a minor that are not specifically designed for education. These options may not give the tax benefits of a 529, but may give you more control and flexibility.
Roth IRA for Kids
These accounts are wonderful tools to kick start your child's retirement savings. A minor's Roth IRA offers tax-free growth on assets inside of it, the same as regular Roth IRAs. There are some restrictions though for a Kid's Roth IRA.
- Child must have employment compensation (e.g., babysitting, mowing lawns, raking leaves, or W-2 income).
- An adult must act as custodian until the child reaches the age of majority, but the money will still be owned by the minor.
- Contribution cannot exceed the minor's earnings. For example, if a minor earns $2,000 in a year, the maximum Roth Contribution for that year is $2,000.
- Maximum contribution for 2023 is $6,500
Gifting Limits
There are annual gifting limits that must be abided in any of these accounts. For 2023, the annual gift tax exclusion is $17,000 per spouse per person per year. A married couple then could gift $34,000 per year to each person they choose.
