Coverdell Education Savings Account

Section 529 Education Savings Plan

Gifts to Minors (UTMA/UGMA Accounts)

Withdrawals from a Traditional or Roth IRA

Loans from a 401(k) Plan

EE Savings Bonds

Maximum Investment

$2,000 per year per beneficiary

Varies by state. Maximum account balance limits generally exceed $125,000 per beneficiary

No limit.

$3,000 per year, increasing to $5,000 per year by 2008. No limit on withdrawals.

The lesser of $50,000 of half of the vested amount can be borrowed.

$15,000 per year.

Permissible use of funds

Tuition, fees, books, supplies, room and board and equipment for any accredited K-12 or post- secondary school.

Tuition, fees, books, supplies, room and board and equipment for any accredited post-secondary school.

Any expense beyond basic support of the  child.

Tuition, fees, books, supplies, room and board and equipment for any accredited post-secondary school.

Any expense.

Tuition and fees only.

Control of Investment Decisions

Owner.

Owner's choices are limited to options within a particular state's plan.

Custodian before the child reaches age of majority (usually age 18 or 21); after that, the child.

Owner.

Owner.

Owner does not have a choice of investments.

Income Tax Treatment

Earnings are federal and state income tax deferred, and withdrawals are federal tax-free if used for qualified elementary, secondary, or higher education expenses.

Earnings are federal and state income tax deferred, and withdrawals are federal tax-free if used for qualified higher education expenses. In some states a state income tax deduction is available for contributions. The federal tax-free treatment is scheduled to expire after December 31, 2010, unless extended by Congress.

When child is under 14, first $750 of unearned income is tax exempt, next $750 is taxed as the child's rate, and the rest is taxed at the parents' rate. After the child turns 14, all earnings are taxed at the child's rate.

Traditional IRA contributions may be tax-deductible, and entire proceeds are taxed at the owner's rate. Earnings on a Roth IRA are tax-exempt if taken out after the owner turns 59 ½.

No special tax benefits. Loan amount is not subject to tax unless owner defaults on loan.

Earnings are exempt from state and local income taxes and are federal income tax deferred if used for qualified higher education expenses.

Estate and Gift Tax Treatment

The value of the account is removed from the account owner's taxable estate.

The value of the account is removed from the account owner's taxable estate, except in limited situations.

The value of the account is included in the custodian's taxable estate if the custodian is the legal guardian of the child and dies before the child takes control.

The value of the account is included in the account owner's taxable estate.

The value of the account is included in the account owner's taxable estate.

The value of the account is included in the bond owner's taxable estate.

Income Restriction

Yes. ¹

No.

No.

Yes. ²

No.

No.

Tax Credits Affected

Yes. See your tax advisor.

Yes. See your tax advisor.

No.

No.

No.

Yes. See your tax advisor.

Penalties Limiting Flexibility

Earnings on non-qualified withdrawals are taxed at owner's rate, plus a 10% penalty.

Earnings on non-qualified withdrawals are taxed at owner's rate, plus a 10% penalty.

Money can be used at any time for the benefit of the child without penalty.

No penalty on early withdrawals if used for higher education expenses. For Roth IRAs, earnings on early withdrawals are taxed at the owner's rate.

Money can be borrowed at almost any time for any purpose.

EE Bonds can be redeemed after 6 months. A 3-month earnings penalty applies to a redemption within 5 years of the issuance of the bond.

Financial Aid Treatment

Student's assets.

Parents' assets. Note: prepaid tuition plans may reduce aid dollar-for-dollar.

Student's assets.

Not considered in the expected family contribution (EFC) calculation.

Not considered in the expected family contribution (EFC) calculation.

Parents' assets, if education expenses are for a child. Student's assets, if education expenses are for bond owner.