Education Planning

Create a smart strategy and save for college

Higher education requires a higher degree of preparation.

529 plans and Coverdell ESAs
Higher education prepaid plans
Analysis of potential tax advantages

The already high cost of a college education continues to rise, adding tens of thousands of dollars in burdensome student debt each year. To be competitive in today’s market, students are encouraged to pursue not only four-year degrees, but also graduate programs. The costs of these programs vary significantly based on course of study and institution, but they can easily cost nearly $100,000 annually, and this doesn’t even take into account the cost of books, room and board.

Despite these figures, families are willing to help students pay for a college degree because the perceived benefits outweigh the costs in terms of salary. The bottom line: While college continues to pay over the long haul, the cost of higher education continues to rise, and funding continues to be an issue families face.

Aside from opportunities for scholarships, grants and student loans, there are other options to help you plan for your children’s educational future. These range from outright gifts or gifts in trust to custodial arrangements. Your Wealth Management Advisor can help review your goals, address concerns, and develop a plan that will work best for your family.

Tax strategies of college savings plans

529 plans
Coverdell ESA
U.S. Savings Bonds
Custodial Account
Participation restrictions No, though state-run prepaid tuition plans are generally limited to state residents Yes, income limit for contributions and $2,000 maximum annual contribution per child No, but ability to exclude bond proceeds from federal income tax depends on income No
Control of underlying investments No Yes Yes Yes
Federal tax-free withdrawals if funds are used for qualified education expenses Yes (withdrawals may also be exempt from state income tax, depending on state law) Yes (withdrawals may also be exempt from state income tax, depending on state law) Yes, but income limits and other requirements must be met (bond proceeds are generally exempt from state income tax) No
Penalty if funds are not used for qualified education expenses Yes, a 10 percent federal penalty applies to the earnings portion of all nonqualified withdrawals (a state penalty may also apply) Same as 529 plans No, but the bond proceeds won't be exempt from federal income tax No, but withdrawals from the account can only be made for the child's benefit

Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets or developments mentioned. Raymond James financial advisors do not provide tax advice. You should contact your tax advisor concerning your particular situation.

As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. Investors should consider, before investing, whether the investor's or the designated beneficiary's home state offers any tax or other benefits that are only available for investment in such state's 529 college savings plan. Such benefits include financial aid, scholarship funds, and protection from creditors. The tax implications can vary significantly from state to state.

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