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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.

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• Contributions and earnings grow federal tax-deferred and funds withdrawn for qualified higher education expenses are completely free from federal income taxes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.

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

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.