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Education Planning

Today, there are many strategies and investment vehicles available to help maximize college saving than ever before. Some of these investment vehicles include 529 savings plans, Coverdell Education Savings Accounts (formerly called Education IRAs), UGMA/UTMA accounts, Series EE Savings Bonds and taxable investment accounts such as mutual funds or savings accounts. Selecting a suitable strategy and the best combination of investment vehicles is critical.

Define Your Child’s Education Needs

529 savings plans are sponsored by individual states and generally managed by financial firms with tax-deferred growth. All distributions are federal income tax-free1 if used for qualified education expenses (QEE)— tuition, fees, books, room and board.

Uniform Gift/Transfer of Minor Act (UGMA/UTMA) accounts allow for contributions to a child with an adult as custodian. When the child reaches age 18 through 21, depending on the state, the child gains control of the account. These accounts can be costly to the student with eligibility for financial aid.

Coverdell Education Savings accounts allow contributions of $2,000 a year per child for education (college or K-12) expenses. The earnings grow federally tax-free, and distributions used for QEE are federal income tax-free; however, income limitations may apply.

Maxima Wealth Management will help you evaluate key characteristics of each option and their impact to you and your estate including:

  1. Growth potential

  2. Risk of loss

  3. Tax implications

  4. Ownership and control

  5. Ease of management

  6. Fees and expenses

1 State tax laws and treatment may vary. Earnings on non-qualified distributions will be subject to income tax and a 10% federal penalty tax.

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