Susan E. Thomas CPA
Newsletter
Comparison of College Savings Vehicles


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
Federal financial aid treatment (student assets are weighed more heavily than parent assets) Parent asset, if parent or student is account owner, or if 529 plan was funded with custodial account funds Parent asset, if parent is account owner Parent asset, if parent is owner of bonds Student asset
Fees and expenses College savings plan: typically an annual maintenance fee, administration fees, and investment expenses based on a percentage of total account value

Prepaid tuition plan: typically an enrollment fee and various administrative fees

There may be fees associated with opening and/or maintaining an account, depending on financial institution No fees or expenses, except for the possibility of brokerage fees if bonds are purchased through a broker There may be fees associated with opening and/or maintaining an account, depending on financial institution

Note: Investors should consider the investment objectives, risks, charges and expenses associated with 529 plans carefully before investing. More information about 529 plans is available in the issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits. As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated.

Note: The availability of the tax or other benefits mentioned above may be conditioned on meeting certain requirements.



Prepared by Broadridge Investor Communication Solutions, Inc, Copyright 2011