Here's part 2 of a series highlighting a handy interactive chart from MSNBC on the four major ways to save for college expenses:
UGMA/UTMA
With a Uniform Gift to Minors or Uniform Trust for Minors account, you place money in the child's name and act as custodian, managing the account, until the child reaches the age of majority (18 to 25, depending on the state). The income and gains get tax breaks, but you must use the account to pay expenses for the benefit of the child. Once the child reaches the age of majority, they own the account and you no longer have control of the funds.
Limitations
Contribution limits -- none
Income limits -- no
Use of funds -- Expenses that benefit the child.
Taxes
On investments -- Paid annually.
On withdrawals -- First $750 of income or capital gains is tax free; over $750 is taxed at your rate. When child turns 14, income is taxed at child's rate.
Changes
Beneficiary -- Not allowed.
Investments -- Allowed any time, but taxes may apply.
Switch money back to your name -- No, must be used for the benefit of the child.
I'm not using this simply because my kids are still young and I'm not sure I want to put money into something that they will eventually have total control over. Once I see whether or not my kids will be responsible with the funds, then I may invest here, but other than the slight tax benefit, there doesn't seen to be much of a benefit to this option for the flexibility it takes away.
Click here to read part 3 of this series.
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