Get Started

Explore the choices and considerations you’ll want to weigh when developing your strategy to invest for college.

Understanding the Basics

Setting aside funds for higher education can create a brighter future for you or a loved one, but deciding how to go about investing can leave you guessing. If you are setting aside funds specifically for education - then vehicles like the TD Ameritrade 529 College Savings Plan and Coverdell Education Savings accounts offer tax deferred or even tax-free growth so you can maximize your potential savings. Whichever approach you select, it’s important to remember that starting early and contributing even just a little bit can help you reach your goals faster.

Back to Top

Investment Vehicles Designed for Education

There are a number of choices available for those seeking tax-efficient accounts specific to education. These include the TD Ameritrade 529 College Savings Plan, Coverdell Education Savings accounts, and UGMA/UTMA Custodial accounts.

 

529 Plans

Sponsored by individual states, these college savings plans offer a level of flexibility and tax advantage that make them a great option. Benefits of a 529 plan vary from state to state. Details of the TD Ameritrade 529 College Savings Plan include:

  • The account owner maintains control over the account, even if the beneficiary decides not to go to college
  • Allocate assets based on risk tolerance or child’s age
  • Contribute $360,000 in a lifetime
  • Contributions and earnings grow federal tax-deferred and funds withdrawn for qualified higher education expenses are completely free from federal income taxes
  • Some states may offer tax benefits to in-state residents1
  • Invest as much as $14,000 per year per child, or $70,000 in a single year, without incurring federal gift taxes2

Learn more about the TD Ameritrade 529 College Savings Plan’s benefits and choices available to you as a TD Ameritrade client.

 

Coverdell Education Savings Accounts

These accounts offer federal tax-free earnings and withdrawals on qualified expenses such as tuition, books, computers, and room & board. While 529 Plans are used exclusively for college, Coverdell Education Savings accounts (ESAs) can be used for elementary and secondary schooling in addition to college. Additionally, there are no minimum contributions, and account owners can contribute up to $2000 per child per year.

See if Coverdell ESAs are right for you by exploring more account details.

 

UGMA/UTMA Custodial Accounts

Custodial accounts provide a way to build assets for your children or loved ones future, and let you to manage a minor’s assets for their benefit. As you build a portfolio, with or without assets from the minor, you will be the guardian of the account, managing it until the minor reaches the age of majority. From the start, the account will be held under the minor’s name and Social Security number. Once they are old enough, they will assume control of all assets.

Learn more about the tax benefits and details of custodial accounts.

Back to Top

Compare Education Investment Vehicles

See below for a side-by-side comparison of 529 Plans, Coverdell ESAs, and UGMA/UTMA Custodial Accounts.

 

529 Plans Coverdell ESAs UGMA/UTMA Custodial Accounts

Is there a contribution limit?

Yes (Varies by state)

Yes ($2,000 per year)

No

What’s included in “qualified expenses?”

Tuition, fees, books, school equipment, school supplies, room & board for college only

Tuition, fees, books, school equipment, school supplies, room & board for all levels of education

Any costs that benefit the minor for education-related or other costs

Are qualified expenses taxed?

No (Federal tax-free, State taxes may apply)

No (Federal tax-free, State taxes may apply)

Yes (Investment income is subject to federal income tax, possibly at child rate)

Can you change the beneficiary?

Yes

Yes

No

Are there any income limit restrictions?

No

Yes (Ineligible if your Adjusted Gross Income is $95,000-110,000 for single filer; and $190,000-220,000 for joint filers)

No

How is the account treated for estate tax purposes?

The value of the account is removed from the account owner’s taxable estate

Contributions are treated as completed gifts from the contributor to the beneficiary

The value of the account is included in the custodian’s taxable estate

Back to Top

Additional Options

If you would like to invest for you or your child’s education, but want the flexibility to use the funds for something other than education, then standard investment accounts might be a better approach. They let you use similar products, such as stocks and bonds, to build a portfolio. But they give you the flexibility to use the earnings for things other than associated education costs. They may not offer some or any of the tax benefits of education accounts, however. Contact a specialist to discuss other, more versatile options.

Back to Top

See if You’re on Track

Tracking progress or estimating how much you'll need to invest each year in order to reach your goal is an important part of starting and maintaining an effective strategy. See how far you’ve come and how far you may still need to go with our easy-to-use tools.

Back to Top

AdChoices

Market volatility, volume and system availability may delay account access and trade executions.

Educational resources are provided for general information purposes only and should not be considered an individualized recommendation or advice.

TD Ameritrade does not provide tax advice.

1. Withdrawals used to pay for qualified higher education-related expenses are free from federal and Nebraska state income tax. These expenses include tuition, fees, books, supplies, and equipment required for enrollment at an Eligible Educational Institution. Room and board is considered a qualified education-related expense if the student is enrolled on at least a half time basis. The earnings portion (if any) of a Non-Qualified Withdrawal will be treated as ordinary income to the recipient and may also be subject to an additional 10% federal tax.

2. A donor may elect to treat a contribution to a beneficiary’s account as made ratably over a five-year period. As a result a donor may make a contribution to a beneficiary’s account of up to $70,000 (or up to twice that much if the donor and his or her spouse elect to “split” gifts) without any negative gift tax consequences, so long as the donor does not make any additional contributions to the account (or any other gifts to the account beneficiary) during that tax year or any of the succeeding four calendar years. A Federal Gift Tax Return (Form 709) is required to be filed. Please consult with your tax or legal professional. If the donor dies before the end of the five-year period, the portion of the contribution allocable to years after the donor’s death will be includible in the donor’s estate for Federal estate tax purposes.

The TD Ameritrade 529 College Savings Plan (the “Plan”) is one of four college savings plans sponsored by the State of Nebraska and Administered by the Nebraska State Treasurer.  The Plan offers a series of investment Portfolios within the Nebraska Educational Savings Plan Trust (the “Trust”), which offers other investment Portfolios not affiliated with the Plan. The Nebraska State Treasurer serves as Trustee and First National Bank of Omaha serves as Program Manager. TD Ameritrade, Inc. markets the Plan. The Plan is intended to operate as a qualified tuition program, pursuant to Section 529 of the U.S. Internal Revenue Code.

Before investing in the Plan, carefully consider the investment objectives, risks, charges and expenses involved. This and other information regarding the plan is included in the Program Disclosure Statement and Participation Agreement and each prospectus on the underlying funds, which may be obtained by emailing us at tdameritrade@nest529.com or by calling 877-408-4644. Please read each prospectus, the Program Disclosure Statement, and Participation Agreement carefully prior to investing. Investment return and principal value of an investment will fluctuate so that an investor’s units, when withdrawn, may be worth more or less than their original cost.

You should be aware that other states may sponsor their own qualified tuition plans and may offer a state tax deduction or other benefits that are limited to residents who invest in that plan. You should consult with your financial, tax or other advisor about state and local tax benefits or limitations based on your specific situation. Favorable tax treatment by your state of residence should be one of many appropriately weighted factors you should consider in making an investment decision.

Nebraska Educational Savings Plan Trust, Issuer. Nebraska State Treasurer, Administrator. First National Bank of Omaha, Program Manager. First National Capital Markets, Inc., Primary Distributor, Member FINRA, SIPC. First National Capital Markets, Inc. and First National Bank of Omaha are affiliates.

Participation in the Plan does not guarantee that contributions and the investment return on contributions, if any, will be adequate to cover future tuition and other higher education expenses or that a beneficiary will be admitted to or continue to attend an eligible educational institution.

The material is provided for general and educational purposes only, and is not intended to provide legal, tax, or investment advice, or for use to avoid penalties that may be imposed under U.S. federal tax laws. This material is not an offer or solicitation of any offer to buy any securities. Any offer to sell units within the Plans may only be made by the Program Disclosure Statement and Participation Agreement relating to the Plan.

The investments in the TD Ameritrade 529 College Savings Plan are not guaranteed or insured by the State of Nebraska, the Nebraska Investment Council, the Nebraska State Treasurer, the State Investment Officer, First National Bank of Omaha, TD Ameritrade, or their authorized agents or any of their affiliates, the Federal Deposit Insurance Corporation, the Securities Investor Protection Corporation.

Withdrawals used to pay for qualified higher education expenses are free from federal and Nebraska state income tax. These expenses include tuition, fees, books, supplies and equipment required for enrollment at a qualified institution of higher education. Room and board is considered a qualified education-related expense if the student is enrolled on at least a half-time basis. The earnings portion (if any) of a Non-Qualified Withdrawal will be treated as ordinary income to the recipient and may also be subject to an additional 10% federal tax penalty.

Investment Products: Not FDIC Insured – No Bank Guarantee – May Lose Value

Every individual’s tax situation is different, and it is important to consult a qualified tax advisor regarding the application of the Plan’s benefits to your own individual situation.

There is no guarantee that any investment portfolio will achieve its investment goals. The value of an account will go up or down based on the performance of the Portfolio in which the account is invested. When funds are withdrawn, they may have more or less value than the total contributions made to the account. Past investment performance is no guarantee of future results.

TD Ameritrade, Inc., member FINRA / SIPC  / NFA . This is not an offer or solicitation in any jurisdiction where we are not authorized to do business. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2014 TD Ameritrade IP Company, Inc. All rights reserved. Used with permission.