Investor Education

Investor Education
education

Saving for Education

Saving for Education

In the past 20 years, the cost of a four-year state college education has risen 9% annually—that’s approximately double the rate of inflation.1 No wonder parents and students alike are worried about saving enough for higher education. At Wasatch Funds, we aim to help you reach your investment goals. That’s why we offer an education savings account and other options that can help.
In this section:

Previously called the Education IRA, the Coverdell Education Savings Account (ESA) has become an attractive savings vehicle for college and even elementary and secondary school expenses. Some key benefits include:

  • Make contributions until the beneficiary reaches age 18
  • Contribute up to $2,000 each year
  • If the funds are not used for education, they may be distributed directly to the child
  • The account must be fully withdrawn by the time the child is age 30 (or taxes and penalties will apply)
  • An ESA is considered an asset of the custodian (usually the parent) when applying for federal student aid; withdrawals are not considered income as long as they are tax-free for federal income taxes

Some of these benefits will change significantly in 2011. At that time:

  • K-12 expenses will no longer qualify for ESA withdrawals
  • Annual contribution limits will be reduced to $500
  • Withdrawals will not be tax free in any year the beneficiary receives a Hope, Lifetime, or Lifetime Learning credit

The Wasatch Funds Education Kit can walk you through more details of the Coverdell ESA as well as the forms needed to apply. Click here to access our Education Kit now.

Initially called the Uniform Gift to Minors Act, the UGMA makes it easier to make a gift to a minor without hefty gift or estate taxes. The law was later amended to the Uniform Transfer to Minor Act (UTMA) which has been adopted by most states. With a UTMA account:

  • A custodian manages the assets of the account on behalf of a child
  • Income generated in the account belongs to the child
  • Gifts to the account (within specified limits) are not subject to the gift tax
  • Gifts made be made to the account until the beneficiary is no longer a minor (age 18 or 21, depending on the state)
  • Assets in the account are not limited to education-related expenses
  • The account transfers to the beneficiary’s control at the age of majority. (This is important to note, as the beneficiary has full discretion on how to use the assets at that time.)