College Savings Options

See the CollegeCounts difference

College Savings Options 2016-11-08T12:34:06+00:00

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 Fund stacks up against other options.

Key factors CollegeCounts 529 Fund Coverdell Education Savings Account (ESA) UGMA/UTMA
Contribution limit $400,000 maximum account balance1 $2,000 per beneficiary per year None
Alabama state income tax-deductible contributions Yes (up to $10,0002) No No
Change of beneficiary allowed Yes Yes No
Age restrictions for contributions None Before age 183 N/A4
Age restrictions for withdrawals None Before age 303 N/A4
Income restrictions None Yes5 None
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 a qualified education expense if the student is enrolled at least half-time.
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.

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.4 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 parent’s tax rate, depending on the amount of taxable income each year.  Check with your tax advisor or investment professional for additional details.

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 $400,000. Although account balances can grow beyond that amount, no additional contributions can be made once the balance reaches $400,000.

2Individuals who file an Alabama state income tax return are eligible to deduct for Alabama state income tax purposes up to $5,000 per tax year ($10,000 for married taxpayers filing jointly if both actually contribute) for total combined contribu­tions to the Plan and other State of Alabama 529 programs. The contributions made to such qualifying plans are deductible on the tax return of the contributing taxpayer for the tax year in which the contributions are made. In the event of a Nonqualified Withdrawal from the Plan, for Alabama state income tax purposes, an amount must be added back to the income of the contributing taxpayer in an amount of the Nonqualified Withdrawal plus ten (10%) percent of such amount withdrawn. Such amount will be added back to the income of the contributing taxpayer in the tax year that the Nonqualified Withdrawal was distributed. Please consult with your tax professional.

3Contributions 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.

4Custodianship typically terminates when a minor reaches age 18 (or 21 in Alabama).

5ESA 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.