Education Planning

As we all watch college tuition rates rise astronomically every year, saving enough money for your children and other members of your family to obtain an excellent college education might seem like an impossible dream. Current projections put the price for a four-year education at a state college in 20 years in the neighborhood of $100,000. And tuition for a private university will set you back approximately $250,000. That is a quarter of a million dollars!

Spiraling College Costs

But thanks to special education savings plans, you can start saving early and making regular contributions so you and your family can rest assured that will be enough money to pay for university when the time comes.

U.S. Clients

For our clients in the United States, StateTrust offers diverse savings plans designed to fund higher education, including Education Individual Retirement Accounts (Education IRAs) and Section 529 Plans. Both U.S. citizens and permanent residents are allowed to make contributions to these kinds of savings plans.

Education IRA

Education IRAs, also known as Coverdell Education Savings Accounts, are accounts designed to minimize the cost of higher education.

Characteristics of an Education IRA

1.	A nondeductible, cash contribution up to $2,000 can be made once a year for each beneficiary before they turn 18 years old.
2.	You can open more than one IRA for each individual but the contribution limit will stand at $2,000 per year. It must be designated for qualified higher-education expenses such as fees, school supplies and equipment, tuition (eligible post-secondary institute), room and board, and textbooks. Elementary and secondary school expenses are now included.
3.	Withdrawals are tax-free. Any IRA earnings are tax-free provided that annual expenses amount to more than the withdrawals. In a case where annual expenses are higher than the IRA distribution, the beneficiary would be required to pay income tax on either all of the earnings or a portion thereof.
4.	Money left in the IRA when a beneficiary turns 30 years old will incur taxes along with a 10% penalty.
5.	You cannot make contributions to an Education IRA if you pay into a qualified state tuition program.

529 Plans

Section 529 Plans are another option for funding college educations. High contribution limits are one of the many terrific advantages of these plans. Limits vary for each state—but the range generally runs from approximately $140,000 to $300,000. Besides parents anyone can contribute:

		Friends
		Coworkers
		Grandparents
		Acquaintances

Characteristics of a Section 529 Plan

1.	Many plans let you open an account with a small preliminary investment.
2.	Savings grow tax-free and as long as the money is withdrawn for higher education, no federal income tax is imposed (earnings may be taxed by the state at the beneficiary’s rate once a withdrawal is made; tax treatment may differ for in-state and out-of-state residents).
3.	If distributions are utilized for any purpose other than higher education, then you will be required to pay not only regular taxes but a 10% penalty along with them.
4.	Plans usually offer an assortment of investment options as well and can be rolled over once a year to another program if so desired.
5.	Other plans offer flexibility with regard to changing beneficiaries if circumstances change. Beneficiaries are not required by law to be related to you.
6.	In some states, plans can be utilized for graduate school.

Qualified Higher Education Expenses (Withdrawals are Tax-Free)

		Tuition
		Books/supplies
		Fees
		Room and board

Uniform Transfer to Minors Act (UTMA)

		Allows for lifetime transfer of property and virtually any other assets to a custodian (you or someone you appoint) for the benefit of a minor
		Custodians are considered fiduciaries and so are charged with the careful investing of assets
		Testamentary transfers that you create in your will and lifetime irrevocable transfers are both acceptable
		Once the child attains the age of majority in their home state (age 18 or 21 usually, with some states extending the age up to 25), they receive legal and equitable title to real estate and other assets