Other Savings Options to Consider
The report also examines several additional strategies beyond 529 plans that can assist parents and students to save for college education:
Coverdell Accounts: As with a 529, a Coverdell Education Savings Account (ESA) lets assets grow tax-deferred. Distributions are tax-free as long as they are for qualified education expenses. The ESA can be set up in a brokerage account with stocks, bonds, exchange traded funds and other investments. It allows unlimited changes to asset allocation, and funds can be used for K-12 education expenses. However, contributions for each beneficiary cannot exceed $2,000 per year per beneficiary under age 18, which may limit a parent's ability to save sufficient funds to cover several years of college expenses.
UGMA/UTMA Account: UGMA (Uniform Gift to Minors Act) and UTMA (Uniform Transfer to Minors Act) can contain stocks, bonds, mutual funds, and real estate. However, parents lose control when the child reaches the age of majority in their state, at which time the child can use the funds in any way. These accounts do not grow tax-free like 529 plans, yet money can be used for expenses other than college.
Trust Accounts: A 2503(c) Trust or a Crummey Trust -- both irrevocable -- are taxable accounts and typically more expensive to set up than a 529, yet they have unique benefits:
•A 2503(c) Trust is created to receive annual exclusion gifts for the benefit of a minor. At age 21, the beneficiary can withdraw assets from the trust. If the beneficiary chooses not to withdraw, the assets may be retained in trust until the beneficiary reaches another defined distribution date. •A Crummey Trust is established to receive annual $14,000 gifts. An annual withdrawal power applies whenever a gift is made to the trust. These trusts are more flexible than 2503(c) trusts because no withdrawal rights are required at age 21, trust distributions can be for any specified purpose and may be limited to just education expenses, and multiple beneficiaries can be named under a single trust document.
"Going to college or university is increasingly expensive if a child does not receive a scholarship, so it is incumbent on parents to examine all of the options available to save for a child's education," added Mr. Williams. "Proper planning involves starting early, contributing consistently, working as a family to choose an affordable school, and teaching kids about student debt."
Williams concluded by advising individuals who are interested in learning more about saving for education to visit their local BMO Harris Bank branch and meet with a financial advisor.
To view a copy of the full report, please visit: http://www.bmoharris.com/financialadvisors/resources/bmo-wealth-institute?nav=left
About BMO Private Bank, a Part of BMO Financial Group
BMO Private Bank offers a comprehensive range of wealth management services that include investment advisory, trust, banking and financial planning to meet the financial needs of high net worth clients. Through integrated teams of experienced financial professionals, BMO Private Bank helps its clients realize their financial and lifestyle goals with solutions that are custom tailored and delivered with the highest level of personalized service.
BMO Private Bank is a brand name used in the United States by BMO Harris Bank N.A. Member FDIC. Not all products and services are available in every state and/or location.
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