Give the Gift of an Education

How Should You Save for Your Child's College Education? Consider These Plans

529 Plan form with eyeglasses and pen

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.

disclosure

Before investing in a 529 plan, consider the plans investment objectives, risks, charges, and expenses. Contact the plan issuer for an official statement containing this and other information. Read it carefully.

Investors should consider before investing whether their or their beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program and should consult their tax advisor, attorney and/or other advisor regarding their specific legal, investment or tax situation.

Except for the Bank Static Savings Investment Option, investments in the State Farm 529 Savings Plan are not guaranteed or insured by the FDIC or any other government agency and are not deposits or other obligations of any depository institution. Investments are not guaranteed or insured by the State of Nebraska, the Nebraska State Treasurer, the Nebraska Investment Council, State Farm VP Management Corp or First National Bank of Omaha or its author authorized agents or their affiliates, and are subject to investment risks, including loss of the principal amount invested. FDIC insurance is provided for the Bank Savings Investment Option up to the maximum amount set by federal law, currently $250,000.

Neither State Farm® nor its agents provide tax or legal advice.

AP2018/06/0799