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.
|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 (2022)||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 $16,000 annual exclusion, or up to $80,000 with 5-year accelerated election ($32,000/$160,000 respectively for spouses who gift split)4
|Contributions treated as completed gifts; 2022 annual contribution limit is $2,000||Transfers treated as completed gifts, subject to $16,000 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 $3,522 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.