There are several attractive options to set aside money for your child's or grandchild's higher education expenses.
529 Plans
Every state now offers at least one kind of 529 plan, and it is not necessary to invest in the plan for the state in which you live. Simply pick the plan that is best for you. Also, investing in 529 plans provide special tax benefits. These benefits include tax-free distributions, the ability of your investment to grow tax-deferred, and the ability of you, the investor, to stay in control of the account. The named beneficiary has no rights to the funds, so that you can decide how the money is best spent and also when it is best spent. Some states offer upfront tax deductions for investment contributions. 529 plans offer a low maintenance solution to saving for college. Once enrolled, automatic contributions can be made to the account, and the plan is professionally managed by the state treasurer’s office or by an outside investment company. Contact an advisor today to see if one of these flexible, beneficial plans is right for you and your family’s educational planning needs.
Uniform Gifts (and Tranfers) to Minors Act (UGMA or UTMA)
UTMA and UGMA accounts are custodial accounts that permit the transfer of property to a minor without establishing a trust. These accounts allow a custodian to manage the investment, including buying and selling, reinvesting earnings, and the like. The custodian can also make withdrawals for the benefit of the minor. The account automatically terminates when the child reaches a specified age, designated by state law. Property held in a custodial account is owned by the child, therefore the custodian cannot withdrawal the property once it is transferred. Custodial accounts are not subject to a gift tax when the amount of the gift is less than $12,000.