Saving for College 529s and Coverdells

Question 1

In a 529 plan, can a beneficiary even be a non-family member?

Answer 1

Yes, but transferring from a family member to a non-family member could trigger a taxable event

Question 2

In either of the ESAs, is the SSN for the beneficiary needed at the time the app is taken?

Answer 2

Yes

Question 3

In either ESA, with a joint bank account, is a signature guarantee needed?

Answer 3

For American Funds, the answer is no.

Question 4

What are the tax implications on withdrawals from a Non-Qualified UGMA?

Answer 4

Check with a qualified tax professional for specific information since we do not provide tax advice, but otherwise there are no tax implications on withdrawals from UGMAs

Question 5

Does California offer any state tax benefits on any of the ESAs?

Answer 5

Check with a qualified tax professional for specific information since we do not provide tax advice, but otherwise no not on contributions, earnings or withdrawals.

Question 6

In a 529 plan, how often can the owner make changes to the investment portfolio?

Answer 6

The owner is able to change assets among funds once per year or anytime the change the beneficiary

Question 7

What are the contribution limits for UGMA/UTMAs?

Answer 7

There are no limits to contributions made to UGMA/UTMAs

Question 8

What are the tax implications on earnings in a 529 plan?

Answer 8

Check with a qualified tax professional for specific information since we do not provide tax advice, but otherwise earnings grow tax-free

Question 9

What are the tax implications on earnings in a Coverdell?

Answer 9

Check with a qualified tax professional for specific information since we do not provide tax advice, but otherwise earnings grow tax free

Question 10

What are the tax implications on non-qualified withdrawals from 529 plans and Coverdells?

Answer 10

Check with a qualified tax professional for specific information since we do not provide tax advice, but otherwise non-qualified withdrawals will be subject to ordinary income and a 10% penalty

Question 11

What are the federal tax implications on qualified withdrawals from a 529 plan?

Answer 11

Check with a qualified tax professional for specific information since we do not provide tax advice, but otherwise withdrawals used for qualified higher education expenses are free from federal tax

Question 12

What are the federal tax implications on earnings in a UGMA?

Answer 12

For children under 19, the first $950 of earnings are tax free; from $951-$1900 earnings are taxed at the child’s rate; earnings above $1901 are taxed at the parent’s rate. For children over 19, all earnings are taxed at the child’s rate.

Question 13

How often can the owner of a UGMA make changes to the investment portfolio?

Answer 13

Anytime but each change is usually a taxable event

Question 14

Are clients able to rollover a Coverdell from one fund company to another and if so are there any limits?

Answer 14

Yes, once every 12 months

Question 15

Are clients able to rollover a UGMA from on fund company to another and if so are there any limits?

Answer 15

Rollovers with UGMAs are not allowed

Question 16

In a 529 plan, who has authority over the account?

Answer 16

The account owner for the entire life of the account unless they transfer ownership;

Question 17

Which ESA does not allow any beneficiary changes?

Answer 17

UGMAs

Question 18

In a Coverdell, who has authority over the account?

Answer 18

The account owner until the beneficiary reaches 18 years old, then they can take control

Question 19

In a UGMA, who has authority over the account?

Answer 19

The account owner until the beneficiary reaches 18 years old, then they can take control

Question 20

What uses are considered qualified expenses with Coverdells?

Answer 20

Tuition, Room & Board, books, fees for Kindergarten thru Grad School

Question 21

Do 529 plans impose any income limits on the account owners?

Answer 21

No, there are no limits to incomes

Question 22

What uses are considered qualified expenses with 529 plans?

Answer 22

Tuition, Room & Board, books, fees for JCs, Undergrad, Grad, Professional and Technical training

Question 23

Are clients able to rollover a 529 plan from one fund company to another and if so are there any limits?

Answer 23

Yes, once every 12 months or due to a beneficiary change

Question 24

Are there any contribution limits to a 529 plan?

Answer 24

Yes, $350,000 total account value per beneficiary. And, $14,000/$28,000 annually(single/joint) excepting gift tax exclusions over a 5 year period limits are $70,000/$140,000 annually(single/joint)

Question 25

Do Coverdells impose any income limits on account owners?

Answer 25

Yes. Single phaseout starts at $95,000/yr. Single ineligible above $110,000. Joint phaseout at $190,000 and Joint Ineligible above $220,000

Question 26

What is the annual contribution limit to a Coverdell?

Answer 26

$2000 per year per beneficiary

Question 27

Who can open a 529 plan?

Answer 27

Any citizen, Legal US Resident, Corporations, Partnerships, NPOs, and trusts consistent with the requirements of a 529 plan.

Question 28

What are the federal tax implications on qualified withdrawals from a Coverdell?

Answer 28

Withdrawals for qualified elementary, secondary or higher educations expenses are free from federal taxes

Question 29

In a 529 plan, who can be a beneficiary?

Answer 29

A beneficiary can be a relative, friend or oneself that is a legal citizen or resident. NPOs however do not need to designate a beneficiary.

Question 30

Do UGMA/UTMAs impose any income limits on account owners?

Answer 30

No.

Question 31

How often can account owners make changes to their investment portfolio in a Coverdell?

Answer 31

Anytime, there are no limits on the frequency of asset changes in Coverdells

Question 32

What uses of funds in a UGMA/UTMA are considered qualified expenses?

Answer 32

Any use that benefits the child

Question 33

What is the minimum amount of money need to open an American Funds CollegeAmerica 529 plan?

Answer 33

$250 one-time; $50 monthly PAC; or $25 monthly PAC thru an employer’s payroll deduction plan

Question 34

Is there an annual account or set-up fee in a 529 plan?

Answer 34

American Funds charges an annual account fee of $10 and a one-time set up fee of $10 for their CollegeAmerica 529 plan.

Question 35

Can a 529 plan account affect a beneficiary’s ability to qualify for federal need-based financial aid?

Answer 35

Yes, it is regarded as an asset of the “independent” student or an asset of the parent of a “dependent” student

Question 36

What things might qualify a student as “independent” in a 529 plan?

Answer 36

Age 24 by December 31st of the award year, a war veteran, married, has legal dependents other than a spouse, is homeless, is an orphan, is a grad or professional student, or an emancipated minor

Question 37

Can a 529 plan account affect a beneficiary’s medicaid?

Answer 37

A 529 plan can adversely affect on owner or beneficiary’s eligibility for federal or state assistance programs like Medicaid

Question 38

What share classes has Primerica approved for American Funds CollegeAmerica 529 plan?

Answer 38

A, C & E shares