College Savings Plans... Page
- If your beneficiary has not decided about college, you can leave the money in the
account to grow tax-deferred. Generally, there are no age restrictions for the
beneficiary, and he or she could decide to enroll at a later date.
- You can change the beneficiary to another member of the same family. A wide range of
people related to the beneficiary qualify.
- You can make a non-qualified withdrawal from the account at any time and owe regular
income taxes and a penalty on the earnings portion only (usually 10 percent). Penalty-free
withdrawals are allowed if your beneficiary receives a scholarship, or in the event of
death or disability.
More Flexibility than UGMAs
State-sponsored college saving programs can also provide attractive estate planning
advantages. When you open a college savings account for a beneficiary, the contributions
are considered completed gifts, which means they aren't counted in your estate for
taxation purposes. You can contribute up to $50,000 per beneficiary in a single year
($100,000 for a married couple), as long as you do not make any further gifts to those
beneficiaries over the next five years.
Even after you have contributed to an account, you retain control of the assets and can
change beneficiaries or even take back the money if you choose, with usually 10 to 15
percent penalty on earnings. This is a significant advantage over UGMA/UTMA custodial
accounts - the contributions you make to custodial accounts are irrevocable and the child
controls the assets at your state's age of majority (usually 18 or 21).
Start Planning Today
If higher education may be in the future for your children or loved ones, talk with
your financial consultant about participating in a state-sponsored college savings plan
today. A college savings program that offers this level of tax benefits and investment
flexibility is well worth studying.
N. Jones is Senior Vice President and Director of the Merrill Lynch Private
Client Marketing Group.
Courtesy of Article
College Planning Calculators:
What will it take to save
for a college education?
How much will it cost to
raise a child?