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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.

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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 potential tax advantages that can make them a great choice for the right investor. 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 $400,000 in a lifetime per beneficiary1
  • Contributions and earnings grow federal tax-deferred and funds withdrawn for qualified higher education expenses are completely free from federal income taxes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 residents2
  • Invest as much as $15,000 per year per child, or $75,000 in a single year, without incurring federal gift taxes3

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.

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Compare Education Investment Vehicles

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

 

529 PlansCoverdell ESAsUGMA/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
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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. You may not make additional contributions to a TD Ameritrade 529 College Savings Plan account once the aggregate amount of contributions to the Nebraska Educational Savings Plan Trust for a beneficiary equals $400,000 or the value of all accounts in the Trust for the same beneficiary reaches $400,000.

2. 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.

3. 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 $75,000 (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 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. Nebraska Educational Savings Plan Trust serves as Issuer. The Plan is intended to operate as a qualified tuition program to be used only to save for qualified higher education expenses, pursuant to Section 529 of the U.S. Internal Revenue Code.

An investor should consider the Plan’s investment objectives, risks, charges and expenses before investing.  The Program Disclosure Statement at collegesavings.tdameritrade.com, which contains more information, should be read carefully before investing. 

Investors should consider before investing whether their or their beneficiary’s home state offers any state tax or other benefits that are only available for investments in such state’s qualified tuition program and should consult their tax advisor, attorney and/or other advisor regarding their specific legal, investment or tax situation. 

This 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 to sell or a solicitation of an offer to buy any securities.  Any offer to sell units within the Plan may only be made by the Program Disclosure Statement and Participation Agreement relating to the Plan.

TD Ameritrade does not provide tax advice.  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.

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 permitted to continue to attend an eligible educational institution. 

Investments in the TD Ameritrade 529 College Savings Plan are not guaranteed or insured by the FDIC,SIPC or any other government agency, and are not deposits or other obligations of any depository institution.  Investments are not guaranteed or insured by the State of Nebraska, the Nebraska State Treasurer, the Nebraska Investment Council, First National Bank of Omaha or TD Ameritrade, or their authorized agents or their affiliates, and are subject to investment risks, including loss of the principal amount invested. 

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

Nebraska Educational Savings Plan Trust Issuer

Nebraska State Treasurer Trustee

Nebraska Investment Council Investment Oversight

First National Bank of Omaha Program Manager

First National Capital Markets, Inc. Distributor, Member FINRA,SIPC

TD Ameritrade, Inc. sub-administrator

First National Capital Markets and First National Bank of Omaha are affiliates.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

Brokerage services provided by TD Ameritrade, Inc., member FINRA/ SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2018 TD Ameritrade.