Education Savings

Prepare for the future with education savings.

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Learn about the education savings choices available to you, and let a Waddell & Reed advisor help you start saving for college today. 

When you think college, you probably think cost. No surprise. College is expensive. And a variety of factors can impact college costs. Besides tuition and fees, students may have to pay for housing, food, transportation, additional college fees and other living expenses, books and supplies. 

Depending on when your child will start college, you can see here the estimated costs for tuition, room, board and fees for four years of college. Using the College Board Cost of College Calculator we can estimate costs for students starting college in one year, six years and 18 years based on public in-state, out-of-state and private college tuitions and a 3% annual increase.

Future cost of college

Saving for education

The foundation for a strong future begins with higher education. Encouragingly, there are more education funding options now than ever before. Plus, when you begin saving early, you put time on your side as you build an education fund.

Careful research and planning can position you to be prepared when your student starts college. However, knowing which option to choose requires an understanding of the features, benefits and tax implications of each.

Education savings options

Talk to an advisor to become more acquainted with the options below and determine which one is right for your family.

529 College Savings Plan

A 529 plan is a simple and smart way to save for college. It offers you control as the account owner and flexibility in your investment choices. 529 plans are available in nearly every state and are designed so that any U.S. citizen or resident can open an account and invest for higher education expenses.

Begin investing when a child is young and savings has the potential to grow over time, tax deferred, until you're ready to make tax free withdrawals for college expenses.

  • There are no income or age limitations.
  • States sponsoring 529 plans may offer their own tax benefits on contributions, including income tax deductions.
  • Earnings withdrawn that are not used for qualifying college expenses are subject to a 10% federal penalty.

 

Coverdell Education Savings Account (CESA)

A Coverdell Education Savings Account allows you to make an annual nondeductible contribution of $2,000 per child per year to a specially designated investment trust account. The account grows federal income tax free and withdrawals are tax free. Coverdell funds can be used for college expenses as well as K-12 expenses.

  • Adjusted Gross Income (AGI) limitations apply, and no contributions are allowed after the beneficiary's 18th birthday.
  • Beneficiary must use the funds within 30 days after their 30th birthday unless rolled over to a new beneficiary, except in the case of a special-needs beneficiary.
  • Earnings withdrawn from a CESA that are not used for qualifying educational expenses are subject to a 10% federal penalty.

UTMA/UGMA

You can save for higher education expenses as the custodian of an account opened in a minor’s name. An UGMA/UTMA allows you to make an irrevocable gift of money to a child. While the assets belong to the minor, you control them until the child reaches legal age in your state.

  • There are no income limitations or annual contribution limits. In addition, contributions up to annual gifting limits of $14,000 (or $28,000 if married filing jointly) are gift tax-free.
  • Earnings are taxable on a current basis at the child's and/or parent's rate, depending on the amount of income earned. Withdrawals of contributions are not subject to income tax.
  • Once established, the account beneficiaries and owner can not be changed and the account transfers to the child when they reach legal age.

Learn more about saving for higher education.

Contact a Waddell & Reed advisor today to find out how to incorporate education savings into your financial plan.

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This information is provided for informational and educational purposes only.

The information provided may include references to concepts that have legal, accounting and tax implications. It is not to be construed as legal, accounting or tax advice, and is provided as general information to assist in the understanding the issues discussed. Neither Waddell & Reed, Inc., nor its financial advisors associated with Waddell & Reed give tax, legal, or accounting advice. You may want to consult with your accountant or tax advisor to discuss your personal situation.

Past performance is not a guarantee of future results. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance.

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