Comparison of Selected College Savings Vehicles

              Bright Start® Section 529
College Savings Program
Uniform Trust/Gift to
Minors Act Account
(UTMA/UGMA)
Coverdell Education
Savings Account
Roth Individual
Retirement Account
Qualifying U.S.
Savings Bonds
Taxable
Account
State-sponsored, tax-advantaged
education savings
vehicle used for qualified
higher education expenses.
Custodial account managed
for the benefit of a minor.
The account is an irrevocable
transfer of assets into a
child’s name.
Tax-advantaged education
savings vehicle for qualified
K-12 and higher education
expenses.
Tax-advantaged investment
vehicle used in certain cases
to fund qualified higher
education expenses.
Series EE (issued after 1989)
and Series I Savings Bonds
may be used to fund qualified
higher education expenses.
Any taxable
account.
Anyone (relative or non-relative)
who is a U.S. citizen
or resident alien.
Anyone (relative or non-relative)
who is a U.S. citizen
or resident alien.
Anyone (relative or non-relative)
who is a U.S. citizen
or resident alien.
Anyone, or their spouse who is a
U.S. citizen or resident alien who
has earned income.
Anyone over age 24
(relative or non-relative)
who is a U.S. citizen.
Anyone
None None Individuals meeting the modified
adjusted gross income limit.1
Individuals meeting the modified
adjusted gross income limit.2
None None
None Account ownership transfers
to the minor upon reaching
age of majority.
Contributions: beneficiary must
be under age 18, unless special
needs beneficiary.
Distributions: use account
assets by age 30, unless special
needs beneficiary.
None Must be at least 24 years old by
the first day of the month that
the bond was purchased.
None
Higher Education: tuition,
fees, room and board, books
and required supplies and
equipment.
No restrictions, except funds
must be used for the benefit
of the minor. At the age of
majority the child controls use of
funds (don’t have to be used for
higher education).
Higher Education: tuition,
fees, room and board, books
and required supplies and
equipment.
K-12 Schools: also includes
uniforms, transportation,
after-school programs and
computer equipment.
Higher Education: tuition, fees,
room and board, books and
required supplies and equipment.
Tuition and fees, or
contributions to 529 Plans.
Any use
Any educational institution
eligible to receive Title IV
funds: colleges, universities,
graduate schools, community
colleges, vocational and technical
schools. Includes some schools
located outside of U.S.*
No restrictions, except funds
must be used for the benefit
of the minor. At the age of
majority the child controls use of
funds (don’t have to be used for
higher education).
Any educational institution
eligible to receive Title IV funds:
colleges, universities, graduate
schools, community colleges,
vocational and technical
schools. Includes some schools
located outside of U.S.*
May also be used for public,
private or religious schools that
provide elementary or
secondary education (K-12).
Any eligible educational
institution.
Any educational institution
eligible to receive Title
IV funds: colleges, universities,
graduate schools, community
colleges, vocational and technical
schools. Includes some schools
located outside of U.S.*
Anywhere
$235,000 in aggregate
for all accounts for the
same beneficiary.3
Unlimited $2,000 per year in aggregate
for all accounts for the same
beneficiary. Subject to
reduction within an income
phase-out range.1
$3,000 ($3,500 for taxpayers
age 50 and older) per account.
Gradually increasing to $5,000
by 2008.2
$30,000 face value per year/
per person.
No limit
Yes. $10,000 for individual
taxpayer ($20,000 if filing jointly)4
No No No Not applicable No
Tax-free. Earnings grow free
from federal income taxes while
in the account.
If beneficiary is under 14:
· First $800 of earnings is free
from federal income taxes.
· Next $800 is taxed at child’s rate.
· Earnings above $1,600 are taxed
at the parents’ marginal rate.
If the beneficiary is 14 or older:
· First $800 of earnings is free
from federal income taxes.
· Earnings above $800 are
taxed at the child’s rate.
Tax-free. Earnings grow free
from federal income taxes
while in the account.
Tax-free. Earnings grow free
from federal income taxes
while in the account.
Tax-deferred on federal
level, tax-free on state level.
Certain post-1989 bonds
may be redeemed federal
tax-free for qualified higher
education expenses.
Dividends and
interest are taxed
to the owner at
ordinary income
rates, and capital
gains are taxed
at capital gains
rates.
Qualified withdrawals are free
from federal income taxes.6
(non-qualified withdrawals are
subject to taxes and penalties)
Not applicable. See Tax
Treatment on Earnings.
Qualified withdrawals are free
from federal income taxes
Distributions for education
expenses may be penalty-free,
and in some cases, tax-free for
withdrawals from the contri-bution
portion; if the Account has
been held for five years or the
IRA holder is over age 59 1/2
Withdrawals from the earnings
portion may be taxed as
ordinary income when used for
qualified higher education
expenses.
You may be able to exclude from
your gross income all or part
of the interest received on the
redemption of certain U.S. Savings
Bonds if the proceeds are used
for qualified higher education
expenses. If the savings bonds are
issued in your name, or jointly
with a spouse, and are issued
after 1989, the interest may
qualify for this exclusion. Interest
exclusion phases out in 2004
if modified AGI is between
$59,850–$74,850 for singles, or
between $89,750–$119,750 for
married couples filing jointly.
Not applicable
$55,000 per beneficiary ($110,000
for married couples) in a single year
without federal gift tax
consequences.7
$11,000 per beneficiary
($22,000 for married couples
filing jointly) annually without gift
tax consequences.
Subject to Maximum
Contribution Limit as
described above.
Not applicable No gift involved No gift involved
Account owner maintains
control.
Custodian controls investments
until beneficiary reaches age of
majority. Upon reaching age of
majority, ownership transfers
to the minor.
Account owner maintains control
until beneficiary reaches age of
majority.
Account owner maintains
control.
Bondholder controls the funds. Account owner
maintains control.
Yes, to another qualified member
of the current beneficiary’s family.
No Yes, but limited to another
member under age 30 of the
current beneficiary’s family.
Not applicable Not applicable Not applicable
Professionally managed
portfolios.8
Unlimited Unlimited, with the exception
of life insurance contracts
and “collectibles.”
Unlimited, with the exception
of life insurance contracts
and “collectibles.”
Interest-earning bond backed by
the full faith and credit of
the U.S. government.
Unlimited
The earnings portion of a
non-qualified withdrawal is
subject to federal income taxes
and any applicable state income
tax, as well as an additional
10% federal tax.
No restrictions as long as
funds are being used for
the benefit of the minor.
The earnings portion of a
non-qualified withdrawal is
subject to federal income taxes
and any applicable state income
tax, as well as an additional
10% federal tax.
Taxable portion of withdrawal
is subject to 10% early
withdrawal penalty if owner is
under 59 1/2 or if account has been
open for less than five years.
No penalty. Interest on
redeemed bonds is included
in federal income, excluded
from state income.
Not applicable
Description
Who Can Invest?
Income Limit
Maximum Age Limit
How Can Funds
Be Used?
Where Can Funds
Be Used?
Maximum
Contribution Limit
State Tax Deductibility
of Contributions
Tax Treatment on
Earnings5
Tax Treatment of
Withdrawals5
Gift Tax Treatment
Control of Funds
Ability to Change
Beneficiaries
Choice of
Investment Options
Tax Treatment of
Non-Qualified
Withdrawals
Comparison of Selected College Savings Vehicles
In choosing a plan suitable for you, we encourage you to read the important
disclosures below and on the back and on the Program Disclosure Statement,
which contain limitations, restrictions and qualifications regarding the Bright
Start Program, benefits and potential tax advantages.
1 Income limit phase-out for individual tax filers is $95,000-$110,000. For
married taxpayers the income phase-out range for joint taxpayers is
$190,000-$220,000.
2 Income limit phase-out for individual tax filers is $95,000-$110,000. For
married taxpayers the income phase-out range for joint taxpayers is
$150,000-$160,000.
3 The combined maximum account balance limit for the Bright Start College
Savings Program and all other Section 529 Programs established and
maintained by the State of Illinois, for a particular student cannot exceed
$235,000. Although account balances can grow beyond that amount, no
additional contributions can be made once the balance reaches $235,000.
4 Effective with the tax year beginning January 1, 2005, for each individual
filer, up to a maximum of $10,000 in contributions (up to $20,000 if filing
jointly) to the Program in a tax year is deductible from state taxable income
for that tax year including the contribution portion of rollovers (but not the
earnings portion of rollovers) from other Section 529 programs.
5 State tax treatments vary by state.
6 Please note that the federal tax exemption for qualified withdrawals is due to
expire on December 31, 2010, unless the law providing for the federal
exemption is extended.
7 Contributions between $11,000 and $55,000 made in one year can be
prorated over a five-year period without incurring gift taxes or reducing your
unified estate and gift tax credit. If the account owner dies before the end of
the five-year period, a prorated portion of the contribution will be included in
his or her taxable estate. If you contribute less than the $55,000 maximum,
additional contributions can be made without incurring gift taxes, up to a
prorated level of $11,000 per year. Gift taxation may result if a contribution
exceeds the available annual gift tax exclusion amount remaining for a given
student in the year of contribution.
8 You may change your investment option once per calendar year, or whenever
you change your student.
The Comparison of Selected College Savings Vehicles Chart (“the Chart”)
has been prepared by Citigroup Asset Management to give a general
comparative overview of vehicles that may be used to save for college
expenses. It was compiled from sources and data Citigroup Asset
Management believes to be reliable, but Citigroup Asset Management
makes no representations as to its accuracy and completeness. Citigroup
Asset Management expressly disclaims any responsibility or liability for any
losses or damages arising out of use of the Chart.
*To see a list of eligible educational institutions, visit www.fafsa.ed.gov.