| 529 College Savings | Coverdell | UGMA / UTMA | Mutual Fund | Roth IRA | U.S. Savings Bond | Certificate of Deposit | |
|---|---|---|---|---|---|---|---|
| How used? | Qualified college tuition and fees | Higher education | Any expense that benefits the child | Any purpose | Retirement investment | Any purpose | Any purpose |
| Are contributions state tax deductible? | Varies by state | No | No | No | No | No | No |
| How are withdrawals treated for federal tax purposes? | Withdrawals from 529s are tax-free as long as they’re used for qualified education expenses,2 which include not only college tuition, but also supplies, room and board, equipment, or vocational or technical training, K-12 public or private school tuition,3 apprentice programs and fees,4 and student loan repayment.5 | Withdrawals for qualified higher education expenses are federal income tax free. Non-qualified withdrawals are taxable as ordinary income to the extent of earnings and may also be subject to a 10% federal income tax penalty. Such withdrawals may have state income tax implications. | Earnings above $2,300 are taxed at the parents' tax rate. | If mutual fund is in the name of the parent or child, taxed on earnings when income received. If mutual fund is in name of child, unearned income is taxed at the rate of trusts and estates. | Early distributions before the age of 59.5 are subject to federal income tax on the earnings, but the 10% penalty tax may be waived if distribution is used for qualified higher education expenses | Taxed on earnings when income is received | Taxed on earnings when income is received |
| Are there state taxes on earnings? | Varies by state | Varies by state | Varies by state | Varies by state | Varies by state | No | Varies by state |
| Are there federal taxes on earnings? | No, if used for qualified expenses | No, if used for qualified expenses | Varies | Yes | Yes | No, if used for qualified educational expenses, the bonds are in the parent's name and subject to certain other requirements | Yes |
| 529 College Savings | Coverdell | UGMA / UTMA | Mutual Fund | Roth IRA | U.S. Savings Bond | Certificate of Deposit | |
| Are there income limitations? | No | Yes | No | No | Yes | No | No |
| What are the investment options? | Individual Investment Options along with Age-Based and Static Portfolios of varying risk |
Variety of securities | Variety of securities | Funds consisting of variety of securities | Variety of securities | Bonds of varying amounts that are backed by the full faith and credit of the United States | CDs with various terms and amounts |
| Who controls the assets? | Account owner | Account owner | Custodian until the beneficiary is age of majority | Account owner | Account owner | Account owner | Account owner |
| How does the product impact financial aid eligibility? | Considered an asset of the account owner | Considered an asset of parent, if account owner | Considered an asset of the child | Considered an asset of the account owner | Considered an asset of the account owner | Considered an asset of the account owner | Considered an asset of the account owner |
| Are there contribution limits?1 | Varies by state. SMART529 is $550,000 per beneficiary | Yes, $2,000 per year | Not applicable | Not applicable | Not applicable | Not applicable | No |
Savings Plans Definitions:
529 College Savings Plan: A tax-advantaged college savings program.
Coverdell Education Savings (ESA): A trust or custodial account set up solely for the purpose of paying qualified education expenses. The designated beneficiary receives tax free distributions to pay qualified education expenses.
UGMA/UTMA Account: Uniform Gifts to Minors Act/Uniform Transfers to Minors Act – Legislation that permits a gift of money or securities to be given to a minor and held in a custodial account that is managed by an adult for the minor’s benefit. By transferring income and capital gains to a minor’s name, they may be taxed at a lower rate.
Mutual Fund: A professionally managed investment fund that pools money from many people and invests it in stocks, bonds or other assets. Each investor in the fund owns shares, which represent a part of these holdings.
Roth IRA: An individual retirement account where contributions are not tax deductable, but qualified distributions are tax free. There are income maximums and maximum annual contributions.
Savings Bonds: A registered, non-callable, non-transferable bond issued by the U.S. Government. They cannot be bought and sold after they are purchased from the government; therefore, there is no secondary market. Face values range from $50 to $10,000.
Certificates of Deposit: A deposit made with a bank, credit union, or savings and loan. It is a specified amount that is deposited for a certain period of time and a set interest rate.
1The contribution limits do not reflect gift tax limitations, if any.
2Non-qualified withdrawals are taxable as ordinary income to the extent of earnings and may also be subject to a 10% federal income tax penalty. Such withdrawals may have state income tax implications.
3 If using a 529 plan for K–12, it can only be used for tuition up to $10,000 per year.
4 529 plans can be used for apprenticeship programs registered and certified with the Secretary of Labor under the National Apprenticeship Act. West Virginia state code does not provide for the inclusion of Apprenticeship Programs as a Qualified Higher Education Expense. This means under current law, earnings associated with distributions for these programs would be subject to West Virginia tax but exempt from Federal tax. Consult a tax professional for further information.
5 Can be used for student loan repayment for a maximum lifetime limit of up to $10,000.1The contribution limits do not reflect gift tax limitations, if any.