College costs may be rising, but there are more choices for college saving today than ever before. Our comparison chart outlines the key differences between 529 plans, Coverdell Education Savings Accounts and UGMA/UTMA Accounts. While all these options have a place in the college planning equation, we believe the flexibility and high contribution limits of 529s set them apart.
Comparison Chart
| Tomorrow’s Scholar 529 Plan | Coverdell ESA | UGMA/UTMA | |
|---|---|---|---|
| Control of Account | Plan owner (usually parents) has control throughout the life of the account | Trustee or custodian has control until age of majority, then assets belong to child | Custodian has control until age of majority, then assets belong to child |
| Uses and Restrictions | Qualified expenses at almost any post-secondary school | Qualified expenses at public or private primary, secondary, or post-secondary schools | No restrictions |
| Contribution Limit | Tomorrow's Scholar allows $545,500 per beneficiary | $2,000 per minor child per year (2024) | Unlimited |
| Income Eligibility | No limits | Phases out for single filers at $95,000 to $110,000; for joint filers $190,000 to $220,000 | No limits |
| Change in Beneficiary | Can be transferred to another eligible member of the family at any time | Can be transferred to another eligible member of the family (< 30 yrs. old) | Not permitted |
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Federal Income Tax Treatment |
Federal income tax-free (and in many cases state tax free) if used for qualified higher education expenses | Federal income tax-free if used for K–12 and qualified higher education expenses AND fully withdrawn by the time beneficiary reaches age 30 |
If the child’s interest, dividends, and other investment income total more than $2,300, part of that income may be taxed at the parent’s tax rate instead of the child’s tax rate |
| Federal Estate Tax Treatment | Value removed from donor's gross estate | Value removed from donor's gross estate | Value removed from donor's gross estate unless donor remains as custodian |
| Federal Gift Tax Treatment |
Contributions treated as completed gifts, subject to $18,000 annual exclusion, or up to $90,000 with 5-year accelerated election ($36,000/$180,000 respectively for spouses who gift split) |
Contributions treated as completed gifts; 2024 annual contribution limit is $2,000 | Transfers treated as completed gifts, subject to $18,000 annual gift exclusion |
| Federal Financial Aid | Counted as parental asset if parent is account owner, which is often more favorable. Not currently reported if dependent student is account owner | Counted as asset of trustee or custodian, typically the parent |
Counted as student's asset |
| State Tax Deduction1 | Up to a $4,000 deduction from taxable income per eligible family member per year (if Wisconsin resident) | No | No |
| Penalties on Nonqualified Withdrawals | Ordinary income taxes plus a 10% IRS penalty on earnings | Ordinary income taxes plus a 10% IRS penalty on earnings | None |
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1 Please note that the principal portion of any rollover contributions may qualify for reducing WI taxable income; the portion attributed to growth is not eligible.