COLEMAN FINANCIAL SERVICES

CONNECT

Address:

433 Callan Avenue, Suite 205
San Leandro, CA 94577

Phone:


Office: 510-667-0804
Cell: 510-282-6080
Toll Free: 866-459-9825

Fax/Other:

510-614-9213

College Education Funds

Saving for college is easier than ever with a 529 college savings plan or a Coverdell Education Savings Account, you gain significant tax advantages

What is a 529 college savings plan?

A 529 college savings plan is an investment specifically designed to help you save for college. A 529 plan offers you several important benefits.

  • Earnings can grow free from federal tax.
  • A number of states allow a deduction from state taxes for all or part of a contribution to an in-state 529 plan.
  • Withdrawals for qualified higher education expenses are free from federal tax.
  • There are no income limits. You can contribute no matter how much you earn.
  • You can contribute until your account value reaches $250,000. 
  • You can contribute up to $11,000 ($22,000 for married couples) each year without gift-tax consequences, and under a special election, you can contribute up to $55,000 ($110,000 for married couples) at one time by accelerating five years' worth of investments.
  • You maintain control of the assets.
  • You can open a 529 plan for anyone -- your child, grandchild, spouse or even yourself.
  • The plans are sponsored by states -- and all 50 states now sponsor 529 plans -- but you can use a 529 plan to pay higher education expenses at any accredited college, not just schools in the state that sponsors your plan.

What is a Coverdell Education Savings Account?

It is an education on savings accounts, formerly called an Education, IRA, that you can use a pay qualified education expenses from kindergarten through high school and higher education.

  • Earnings can grow free from tax.
  • You can invest up to $2,000 per year.
  • You can change investment options as often as you wish.

Which savings plan is best for you?

Both 529 college savings plans and Coverdell Education Savings Accounts have significant advantages over traditional ways of saving for college. Be sure to talk to your financial adviser before deciding. For a complete comparison of the ways to save for college, including 529 plans and Coverdell Education Savings Accounts, see the following chart:

Paying No Taxes Can Make A Difference

Ending Values

Tax-Free Account $145,286
Taxable Account $109,500
Difference $ 35,786

The chart above illustrates the value of investing in a tax-free account by showing the growth of a hypothetical $300 monthly investment earning 8% annually, compounded monthly, for 18 years. In both a tax-free account and an account taxed at 33%. At the end of 18 years, the difference is more than $35,000, approximately the cost of college in a private university. Of course, if you withdraw money from an account and use it for something other than higher education expenses, you'll face taxes and penalties.

The results shown here are not intended to represent an investment in a specific fund, and, of course, a program of regular investing does not guarantee a profit or protect against loss. Your investment experience will differ.

1 This tax benefit is effective through 2010 unless extended by Congress.

2 Once the account value reaches $250,000 through investments or growth, no more contributions will be accepted.

Note: Investors should consider whether the investor's or beneficiary's home state offers any state tax or other benefits available only from that state's 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investing in any state's 529 Plan.