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Compare College Savings Plans

Which college savings account is right for you? Explore your choices.

Merrill offers different options to help you plan for college. Choose the account that best meets your college savings needs.
A state-sponsored, tax-advantaged college savings plan that offers contribution limits as high as $300,000 annually to help you pay for college expenses
A taxable custodial account invested on behalf of a minor that can be used for any expense that benefits that minor

May be a good move for...

  • Investing for a college education
  • Tax-deferred growth
  • Withdrawing money federal (and often state) tax-free for qualified higher education expensesFootnote1
  • Using funds at any accredited U.S. college or university and at some foreign schools
  • Investing on behalf of a minor
  • Ability to use funds for any expense
  • Accessing a full range of investment choices
  • Enjoying the flexibility of a cash managed account

What's covered?

Withdrawals are tax-free when used to pay for qualified higher education expenses.Footnote1 Learn more.
  • No restrictions on where funds can be used as long as they benefit the minor

Who manages the account?

  • Owner controls the account, the beneficiary is the person using the funds for qualified higher education expenses — usually a child. Friends and family can also open an account or contribute to an existing account on behalf of a child
  • Custodian controls the account until minor reaches the termination age. It is the custodian's obligation to use the assets only for the benefit of the minor and to turn the assets over to the minor when they reach the termination age.

Can I change the beneficiary?

  • Yes—beneficiary can be changed to another family member with no tax consequencesFootnote4
  • No—beneficiary cannot be changed

Tax advantages

  • Any earnings have the opportunity to grow tax-deferred and withdrawals are federal (and often state) tax-free when used for qualified higher education expensesFootnote1
  • Contributions are considered completed gifts and are removed from your taxable estate for estate tax purposes
  • Contribute up to $15,000 ($30,000 for married couples) annually or up to $75,000 ($150,000 for married couples) gift tax-free in a five-year periodFootnote2
  • In 2020, the first $1,100 of a child's income generally is tax-exempt, the next $1,100 of unearned income generally is taxed at the child's tax rate, and unearned income over $2,200 generally is taxed at the parent's tax rate if the child is under 18, or the child is age 18 and does not have earned income that is more than half of his or her financial support, or is a full-time student who is at least age 19 and under age 24 and who does not have earned income that is more than half of his or her financial support if at least one parent is living at the end of the tax year and the child is not filing a joint return for the tax year. (Retroactively for 2018 and 2019, taxpayers may make an election to have the child's parents' tax rate apply instead of the estates and trusts rate that was applicable in 2018 and 2019.)
  • Contribute up to $15,000 ($30,000 for married couples) gift tax-free annuallyFootnote2

Impact on financial aid eligibility

  • More favorable in determining the Expected Family Contribution (EFC)—treated as parental assetFootnote3
  • Less favorable in determining the Expected Family Contribution (EFC)—treated as minor's asset
 

Contributions

How much can I contribute?

  • Most plans allow contributions in excess of $300,000 per beneficiary. Gift tax restrictions applyFootnote2
  • Can only be funded with cash contributions
  • Contribute up to $15,000 ($30,000 for married couples) gift tax-free annually.Footnote2 No statutorily imposed maximum contribution amounts

What are the income limits?

  • None
  • None

What are the age limits on contributions?

  • No age limit
  • No age limit

What are the age limits on withdrawals?

  • No age limit
  • No age limit

Withdrawals and taxes

  • Earnings portion of nonqualified withdrawals is subject to federal and state income tax, plus a 10% additional federal taxFootnote5
  • In 2020, the first $1,100 of a child's income generally is tax-exempt, the next $1,100 of unearned income generally is taxed at the child's tax rate, and unearned income over $2,200 generally is taxed at the parent's tax rate if the child is under 18, or the child is age 18 and does not have earned income that is more than half of his or her financial support, or is a full-time student who is at least age 19 and under age 24 and who does not have earned income that is more than half of his or her financial support if at least one parent is living at the end of the tax year and the child is not filing a joint return for the tax year. (Retroactively for 2018 and 2019, taxpayers may make an election to have the child's parents' tax rate apply instead of the estates and trusts rate that was applicable in 2018 and 2019.)
  • Annual tax return may have to be filed for any earnings in the account

Investment options

  • Varies by plan. Most plans offer investment portfolios consisting of underlying mutual funds or individual mutual fund options
  • Investment options typically range from age-based options, in which the asset allocation mix adjusts based on the age of the beneficiary, to fixed allocation portfolios that range from conservative to aggressive
  • No restrictions other than those imposed by the relevant state UGMA/UTMA laws
 
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Please remember there's always the potential of losing money when you invest in securities.

Before you invest in a Section 529 plan, request the plan's official statement from your Financial Solutions Advisor and read it carefully. The official statement contains more complete information, including investment objectives, charges, expenses and risks of investing in the 529 plan, which you should consider carefully before investing. You should also consider whether your home state or your beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds and protection against creditors that are only available for investments in such state's 529 plan. Section 529 plans are not guaranteed by any state or federal agency.

Neither Merrill nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

Footnote 1 To be eligible for favorable tax treatment afforded to the earnings portion of a withdrawal from a section 529 account, such withdrawal must be used for "qualified higher education expenses," as defined in the Internal Revenue Code. The earnings portion of a withdraw that is not used for such expenses is subject to federal income tax and may be subject to a 10% additional federal tax, as well as applicable state and local income taxes. The additional tax is waived under certain circumstances. The beneficiary must be attending an eligible educational institution at least half time for room and board to be considered a qualified higher education expense, subject to limitations. Institutions must be eligible to participate in federal student financial aid programs. Some foreign institutions are eligible. You can also take a federal income tax-free distribution from a 529 account of up to $10,000 per calendar year per beneficiary from all 529 accounts to help pay for tuition at an elementary or secondary public, private or religious school. For distributions taken after December 31, 2018, qualified higher education expenses now include expenses for fees, books, supplies, and equipment required for the participation of a designated beneficiary in an apprenticeship program registered and certified with the Secretary of Labor under the National Apprenticeship Act and amounts paid as principal or interest on any qualified education loans of the designated beneficiary or sibling of the designated beneficiary, up to a lifetime maximum of $10,000 per individual. Distributions with respect to the loans of a sibling of the designated beneficiary will count towards the lifetime limit of the sibling, not the designated beneficiary. Such repayments may impact student loan interest deductibility. State tax treatment may vary for distributions to pay for tuition in connection with enrollment or attendance at an elementary or secondary public, private or religious school, apprenticeship expenses, and payment of qualified education loans.

Any earnings withdrawn that are not used for such expenses are subject to federal income tax and may be subject to a 10% additional federal tax, as well as applicable state and local income taxes.

Footnote 2 For 2020, individuals can gift up to $75,000 ($150,000 for married couples electing to split gifts) per beneficiary in a single year without incurring gift tax. Contributions between $15,000 and $75,000 ($30,000 and $150,000 for married couples electing to split gifts) made in one year can be prorated over a five-year period without subjecting you to gift tax or reducing your federal unified estate and gift tax credit. If you contribute less than the $75,000 ($150,000 for married couples electing to split gifts) maximum, additional contributions can be made without you being subject to federal gift tax, up to a prorated level of $15,000 ($30,000 for married couples electing to split gifts) per year. Gift taxation may result if a contribution exceeds the available annual gift tax exclusion amount remaining for a given beneficiary in the year of contribution. For contributions between $15,000 and $75,000 ($30,000 and $150,000 for married couples electing to split gifts) made in one year, if the account owner dies before the end of the five-year period, a prorated portion of the contribution may be included in his or her estate for estate tax purposes.

Footnote 3 Financial aid rules may change, and the rules in effect at the time the beneficiary applies may be different. For more complete information visit the Department of Education Web site at www.ed.gov.

Footnote 4 The account owner can change the beneficiary to another member of the family of the original beneficiary, without penalty. Please refer to the Internal Revenue Code definition of "member of the family." If assets are contributed from an UGMA/UTMA account, the custodian may not change the designated minor, except as permitted by applicable law.

Footnote 5 The 10% additional tax does not apply to withdrawals as a result of the designated beneficiary receiving a scholarship or the designated beneficiary's attendance at a U.S. military academy provided the withdrawals do not exceed the amount of the scholarship or value of attendance at the academy. The 10% additional tax also does not apply as a result of withdrawals made due to the death or disability of the designated beneficiary.

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