Setting Your Kid Up for Success – A Guide to College Savings Plans

Whether you are expecting your first child, or your child is in highschool, it’s never too early to start saving for college. College Savings Plans are a great option that every family should consider!

Three of the major types include a UGMA/UTMA, Coverdell IRA’s and the well-known 529 savings plan. Here is an overview of each:

A Coverdell Education Savings Account, also known as an ESA allows for all contributions to grow tax-free until distributed. However, there are some drawbacks to this plan. First, it has a total annual account contribution limit of $2,000. Furthermore, you cannot contribute to this plan if your AGI is greater than $110,000 (single filer) or $220,000 (joint). This plan is designed for lower income families, rather than those anticipating higher education costs, including that of private school.

Uniform Gifts to Minors Act/Uniform Transfers to Minors Act (UGMA/UTMA):
The UGMA/UTMA is another option for your child’s future. This account acts as a custodial account invested in the child’s name. The major advantage to this plan, unlike some others, is that the funds may be used for any need the student may have, rather than just school. Another advantage is the contribution limit, which is higher than the Coverdell at $14,000 annually and that increases to $28,000 for a couple. The biggest downsides are contribution limit, and part of investment earnings may be subject to taxes.

529 Savings Plan:
A 529 Savings Plan is the most common and widely recommended of the options available. Earnings grow tax deferred and can be exempt from federal income tax similar to a Coverdell. It is very similar to a UGMA/UTMA in that contributions are not limited by income. Furthermore, it has a low impact on financial aid and allows for a very high contribution limit at $70k ($140k for married couple). This plan is widely considered the best option, as it can grow with household income, and is the most flexible.

If you are interested in further information, there are plenty of resources available online to assist with your search. However, just like other financial planning, it can often be extremely beneficial to consult with a professional. Financial Directions LLC has been working for over a decade and have a variety of college savings plans to meet your needs. You can get find out more information about what they have to offer by visiting

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