Are you looking for an impactful gift to give to the children in your life for a birthday, holiday or other special occasion? It's never too early to start saving money for your child's education, or you can save for your nieces, nephews, or grandchildren. Long after toys are broken or outgrown, a college savings plan will still be appreciated.
These "qualified tuition programs" allow you to save for education under Section 529(b) of the Internal Revenue Code. The 529 college savings plan allows you or any other family member to open an account specifically for future higher education expenses. Residency requirements may apply. Your investment is tax-deferred and distributions from the fund are exempt from federal income tax if used for qualified education expenses.
Coverdell Education Savings Account (ESA)
A Coverdell ESA is a trust that lets you contribute funds earmarked for future educational costs (elementary and secondary education through college and graduate school), up to $2,000 per year, per child. Contributions can begin at birth and continue until a child turns 18 years of age. Coverdell ESA accounts are exempted from federal income tax and withdrawals are tax-free if used for qualified education expenses.
UGMA and UTMA accounts
Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA) accounts are designed to hold and protect assets for the benefit of a minor. With these two accounts, you can make monetary gifts without setting up a trust. Assets can be used for any reason at any time for the benefit of the named beneficiary and the minor gains control of the funds when they reach the age of trust termination (which is age 18 to 21, depending on state and account restrictions). Assets can be used for education expenses, but because assets are considered the property of the beneficiary, there may be a high impact on financial aid.