See the CollegeCounts difference
With so many ways to save for college, there’s a lot of information out there. View the comparison chart below to see how the CollegeCounts 529 plan stacks up against other options.
| Key Factors | CollegeCounts 529 Fund | Coverdell Education Savings Account (CESA) | U.S. Savings Bonds | UGMA/UTMA | Mutual Funds |
| Contribution Limit | $300,000 maximum account balance |
$2,000 per beneficiary per year2 |
$5,000 per individual per year3 | None | None |
| Alabama state income tax-deductable contributions | Yes4 |
No |
No | No | No |
| Change of beneficiary allowed | Yes | Yes | N/A | No | N/A |
| Age restrictions for contributions | None | Before age 185 | Purchaser must be 243 | N/A6 | None |
| Age restrictions for withdrawals | None | Before age 305 | None | N/A6 | None |
| Income restrictions | None | Yes7 | Yes3 | None | None |
529 College Savings Plan
529 plans were created by section 529 of the Internal Revenue Code. A 529 savings plan is a qualified tuition program, sponsored by a state or state agency, designed to allow families a tax-advantaged way to save for college. A 529 college savings account provides federal tax advantages, potential state tax benefits, account control, and investment flexibility. Savings can be used at eligible institutions for tuition, fees, books, supplies, and equipment required for enrollment. Room and board is also an eligible qualified education expense if the student is enrolled at least half-time.
Coverdell Education Savings Account
A Coverdell Education Savings Account (ESA) is an account created as an incentive to help parents and students save for education expenses. The total contributions for the beneficiary of this account cannot be more than $2,000 in any year, no matter how many accounts have been established. A beneficiary must be under age 18 or be an individual with special needs.
Contributions to a Coverdell ESA are not tax-deductible, but amounts deposited in the account grow tax-free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses. There are contribution limits for taxpayers based on the contributor’s modified adjusted gross income.
<http://www.irs.gov/newsroom/article/0,,id=107636,00.html>
U.S. Savings Bonds
EE bonds that are purchased electronically are sold at face value in amounts of $25 or more. The maximum investment amount in a calendar year is $5,000. These funds are issued electronically to a designated account.
Paper bonds are sold at half their face value; however, the bond is not worth face value until it has matured. Paper bonds are available for purchase in denominations of $50, $75, $100, $200, $500, $1,000, $5,000, and $10,000. The maximum investment amount in a calendar year is $5,000. These bonds are issued as paper bond certificates.
If EE/E bonds are redeemed during the first five years, the three most-recent months’ interest is forfeited. There is no such penalty if the EE/E bonds are redeemed after five years.
For potential special tax treatment - The savings bond education tax exclusion permits qualified taxpayers to exclude from their gross income all or part of the interest paid upon the redemption of eligible Series EE and I Bonds issued after 1989, when the bond owner pays qualified higher education expenses at an eligible institution. To learn more check with your own tax professional. Treasury Direct has the following information on their web site.
UGMA/UTMA
The Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) are custodial accounts that allow you to save for your child’s education or other purposes that benefit the child. Typically you cannot use the funds for items such as food, housing, clothing or other parental obligations.
A custodial account is used to hold and protect assets for a minor until the age of majority is reached. As a custodial account the assets are held in the child’s name with an individual serving as custodian. They are irrevocable gifts to the minor. When the beneficiary attains the age of majority, the beneficiary gains control and can use the funds for any purpose.
UGMA and UTMA accounts are taxed at the child’s or the parents tax rate, depending on the amount of taxable income each year. Check with your tax or investment professional for additional details.
Mutual Funds
Mutual funds are an investment that allows a group of investors to pool their money and hire a portfolio manager. The manager invests this money—the fund’s assets—in stocks, bonds, or other investment securities. The fund manager then continues to buy and sell stocks and securities according to the style dictated by the fund’s prospectus.
There are many types and styles of mutual funds. There are stock funds, bond funds, sector funds, money market funds, and balanced funds. Mutual funds allow you to invest in the market whether you believe in active portfolio management (actively managed funds) or you prefer to buy a segment of the market with no interference from a manager (passive funds and index funds). The availability of different types of funds allows you to build a diversified portfolio at low cost and without much difficulty. Mutual funds offer a simple, efficient way to invest for retirement, education, or other financial goals.
<http://mutualfunds.about.com/od/mutualfundbasics/a/mutualfund.htm>
1The combined maximum account balance limit for the CollegeCounts 529 Fund and all other Section 529 programs established and maintained by the State of Alabama for a particular beneficiary cannot exceed $300,000. Although account balances can grow beyond that amount, no additional contributions can be made once the balance reaches $300,000.
2Unless extended, certain CESA benefits will expire December 31, 2010. If this occurs, the contribution limit will be $500 per year and withdrawals for elementary and secondary education expenses (i.e., K–12) will no longer be tax-free.
3You may be able to cash in qualified U.S. savings bonds without having to include in your income some or all of the interest earned on the bonds if you meet certain conditions, including: you pay qualified education expenses for yourself, your spouse, or a dependent for whom you claim an exemption on your return; your modified adjusted gross income is less than $84,950 ($134,900 if married filing jointly or qualifying widow(er)) – 2009 limits; your filing status is not married filing separately; the U.S. savings bond is a series EE bond issued after 1989 or a series I bond; the savings bond must be issued in your name (as the sole owner) or in the name of both you and your spouse (as co-owners); and the owner must be at least 24 years old before the bond’s issue date. Please check with your tax advisor for details and information regarding your specific situation.
4A deduction, not to exceed $5,000 per taxpayer, is allowed as an adjustment to income on the Alabama income tax return for contributors to the CollegeCounts 529 Fund or existing participants of the PACT Program. The deduction may equal an amount up to $10,000 for married taxpayers filing a joint return where both taxpayers are making such contributions into the CollegeCounts 529 Fund or the PACT Program (closed to new investors).
5Contributions can be made for a beneficiary from birth to age 18. The account may remain open until the beneficiary reaches age 30, with certain limitations.
6Custodianship typically terminates when a minor reaches age 18 or 21.
7CESA eligibility phases out at $95,000–$110,000 adjusted gross income ($190,000– $220,000 for joint filers). Please check with your tax advisor for details and information regarding your specific situation.
The CollegeCounts 529 Fund is a qualified tuition program under Section 529 of the Internal Revenue Code that is sponsored by the State of Alabama and administered by the Board of Trustees of the ACES Trust Fund (the “Trust” and plan issuer). Union Bank & Trust Company serves as Program Manager. Accounts and investments under the CollegeCounts 529 Fund are not insured or guaranteed by the FDIC, the State of Alabama, the State Treasurer of Alabama, the Board, the Trust, the Program, Union Bank & Trust Company, or any other entity.
Before investing, you should consider the investment objectives, risks, fees, expenses, and tax consequences associated with the Program. All of this information is contained in the Program Disclosure Statement. Please read it carefully before investing.
If you or your beneficiary is not an Alabama resident, consider whether your home state or the home state of your designated beneficiary offers a qualified tuition program that provides a state tax deduction or other benefits to residents who invest in that program.