There are many options available to help you save for higher education expenses. Our comparison chart outlines the key differences between 529 plans, Coverdell Education Savings Accounts and UGMA/UTMA Accounts. Your Financial Advisor can help you sort through the choices to come up with the best decision for your needs and budget.
Comparison Chart
| The IAdvisor 529 Plan | Coverdell ESA | UGMA/UTMA | |
|---|---|---|---|
| Control of account | Plan owner (usually a parent) has control throughout the life of the account | Trustee or custodian has control until age of majority, then assets belong to child | Custodian has control until age of majority, but assets always belong to child |
| Uses and restrictions | Qualified expenses at eligible institutions1 | Qualified expenses at public or private primary, secondary, or post-secondary schools | No specific educational requirements; funds must be used for benefit of minor |
| Contribution limit | Allows $420,000 per beneficiary | $2,000 per minor child per year (2024) | Unlimited |
| Income eligibility | No limits | Phases out for single filers at $95,000 to $110,000; for joint filers $190,000 to $220,000 | No limits |
| Age restrictions for beneficiary | None | Can only contribute until child reaches 18 and must withdraw funds before age 30 | Can only contribute until child reaches age of majority |
| Change in beneficiary | Can be transferred to another eligible member of the family at any time2 | Can be transferred to another eligible family member(< 30 yrs. old) | Not permitted since assets are owned by minor child |
| Federal income tax treatment | Earnings and appreciation in value are free from federal income tax if used for qualified higher education expenses3 | Federal income tax-free if used for K–12 and qualified higher education expenses before beneficiary reaches age 30 |
If the child’s interest, dividends, and other investment income total more than $2,300, part of that income may be taxed at the parent’s tax rate instead of the child’s tax rate |
| Federal estate tax treatment | Value removed from account owner's gross estate | Value removed from owner's gross estate | Value removed from contributor's gross estate |
| Federal gift tax treatment |
Contributions treated as completed gifts, subject to $18,000 annual exclusion, or up to $90,000 with 5-year accelerated election$36,000/$180,000 respectively for spouses who gift split)4 |
Contributions treated as completed gifts; 2024 annual contribution limit is $2,000 | Transfers treated as completed gifts, subject to $18,000 annual gift exclusion |
| Federal financial aid | Counted as parental asset if parent is account owner | Counted as asset of trustee or custodian, typically the parent |
Counted as student's asset |
| Federal penalties on nonqualified withdrawals | Ordinary income taxes plus a 10% IRS penalty on earnings | Ordinary income taxes plus a 10% IRS penalty on earnings | None |
| State tax deduction | Up to a $4,028 deduction (adjusted annually for inflation) from Iowa taxable income per beneficiary per year (Adjusted annually for Inflation)5 | None | None |
| State penalties for Iowa taxpayers | If withdraws are not qualified, the deduction must be added back to Iowa taxable income | None | None |
1 Eligible institutions include all post-secondary institutions that participate in the Federal Financial Aid Program.
2 Please see the Program Description for definition of a “family member.”
3 Non-qualified withdrawals may be subject federal and state taxes and an additional federal 10% tax.
4 In the event the contributor does not survive the five-year period, a pro-rated amount will revert back to the contributor’s taxable estate.
5 If withdrawals are not qualified, the deductions must be added back to Iowa taxable income.