Comparison of Selected College Savings Vehicles

              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 Earnings4 Tax Treatment of
Withdrawals4
Gift Tax
Treatment
Control
of Funds
Ability to Change
Beneficiaries
Choice of
Investment Options
Tax Treatment of
Non-Qualified Withdrawals
Bright Start® Section 529
College Savings Program
State-sponsored,
tax-advantaged
education
savings vehicle
used for
qualified higher
education
expenses.
Anyone
(relative or
non-relative)
who is a U.S.
citizen or
resident alien.
None None Higher Education:
tuition,
fees, room and board,
books
and required supplies
and equipment.
Any educational institution
eligible to receive Title IV
funds: colleges, universities,
graduate schools, communi-ty
colleges, vocational and
technical schools. Includes
some schools located out-side
of U.S.*
$235,000 in
aggregate
for all
accounts for
the same
beneficiary.
Yes. $10,000 for Illinois
individual taxpayer
($20,000 if filing
jointly)
Tax-free. Earnings grow free
from federal income taxes
while in the account.
Qualified withdrawals are
free from federal income
taxes.
$55,000 per
beneficiary
($110,000 for
married couples)
in a single year
without federal
gift tax
consequences.
Account
owner
maintains
control.
Yes, to another
qualified member
of the current
beneficiary’s family.
Professionally managed
portfolios. You may change
your investment option
once each calendar year
or when you change your
beneficiary.
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.
Uniform Trust/Gift to
Minors Act Account
(UTMA/UGMA)
Custodial
account managed
for the benefit of
a minor. The
account is an
irrevocable
transfer of assets
into a child’s
name.
Anyone
(relative or
non-relative)
who is a U.S.
citizen or
resident alien.
None Account
ownership
transfers
to the minor
upon reaching
age of
majority.
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).
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 educa-tion).
Unlimited No 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.
Not applicable. See Tax
Treatment on Earnings.
$11,000 per
beneficiary
($22,000 for
married couples
filing jointly)
annually
without gift tax
consequences.
Custodian
controls
investments
until
beneficiary
reaches age
of majority.
Upon
reaching age
of majority,
ownership
transfers to
the minor.
No Unlimited No restrictions as long as
funds are being used for the
benefit of the minor.
Coverdell Education
Savings Account
Tax-advantaged
education savings
vehicle for
qualified K-12
and higher
education
expenses.
Anyone
(relative or
non-relative)
who is a U.S.
citizen or
resident alien.
Individuals
meeting the
modified
adjusted gross
income limit.2
Contributions:
beneficiary
must be under
age 18, unless
special needs
beneficiary.
Distributions:
use account
assets by age
30, unless
special needs
beneficiary.
Higher Education:
tuition,
fees, room and board,
books
and required supplies
and equipment.
K-12 Schools: also
includes uniforms, trans-portation,
after-school programs
and computer equip-ment.
Any educational institution
eligible to receive Title IV
funds: colleges, universities,
graduate schools, communi-ty
colleges, vocational and
technical schools. Includes
some schools located out-side
of U.S.*
May also be used for public,
private or religious schools
that provide elementary or
secondary education (K-12).
$2,000 per
year in
aggregate
for all
accounts
for the same
beneficiary.
Subject to
reduction
within an
income
phase-out
range.2
No Tax-free. Earnings grow free
from federal income taxes
while in the account.
Qualified withdrawals are
free from federal income
taxes.
Subject to
Maximum
Contribution
Limit as
described
above.
Account
owner
maintains
control until
beneficiary
reaches age
of majority.
Yes, but limited to
another member
under age 30 of the
current beneficiary’s
family.
Unlimited, with the
exception of life insurance
contracts and “collectibles.”
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.
Roth Individual
Retirement Account
Tax-advantaged
investment
vehicle used in
certain cases to
fund qualified
higher education
expenses.
Anyone, or
their spouse
who is a U.S.
citizen or
resident alien
who has
earned income.
Individuals
meeting the
modified
adjusted gross
income limit.3
None Higher Education:
tuition, fees, room and
board, books and
required supplies and
equipment.
Any eligible educational
institution.
$4,000
($4,500
for taxpayers
age 50 and
older) per
account.
Gradually
increasing
to $5,000
by 2008.3
No Tax-free. Earnings grow free
from federal income taxes
while in the account.
Distributions for education
expenses may be penalty-free,
and in some cases, tax-free
for withdrawals from
the contribution 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.
Not applicable Account
owner
maintains
control.
Not applicable Unlimited, with the
exception of life insurance
contracts and “collectibles.”
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.
Qualifying U.S.
Savings Bonds
Series EE (issued
after 1989) and
Series I Savings
Bonds may be
used to fund
qualified higher
education
expenses.
Anyone over
age 24
(relative or
non-relative)
who is a U.S.
citizen.
None Must be at
least 24 years
old by the first
day of the
month that
the bond was
purchased.
Tuition and fees, or
contributions to 529
Plans.
Any educational institution
eligible to receive Title
IV funds: colleges, universi-ties,
graduate schools, com-munity
colleges, vocational
and technical schools.
Includes some schools
located outside of U.S.*
$30,000
face value
per year/
per person.
Not applicable 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.
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.
No gift involved Bondholder
controls the
funds.
Not applicable Interest-earning bond
backed by the full faith
and credit of the U.S.
government.
No penalty. Interest on
redeemed bonds is included
in federal income, excluded
from state income.
Taxable
Account
Any taxable
account.
Anyone None None Any use Anywhere No limit No Dividends and interest are
taxed to the owner at ordinary
income rates, and capital gains
are taxed at capital gains rates.
Not applicable No gift involved Account
owner
maintains
control.
Not applicable Unlimited Not applicable
Comparison of Selected College Savings Products Saving for college can be challenging when your family has other financial priorities such as planning for retirement and paying the
mortgage.That's why it's important to decide which college savings product best fits your unique financial situation.
Additional Bright Start Tax Considerations
Balance Limit
•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 beneficiary cannot exceed $235,000.
Although account balances can grow beyond that amount, no additional contributions can be made once the balance
reaches $235,000.
Illinois State Tax Deduction
•For each individual filer, up to a maximum of $10,000 in contributions ($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.
Federal Sunset Provision
•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.
Non-Qualified Withdrawals
•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.
Gift and Estate Taxes
•Contributions between $11,000 and $55,000 made in one year can be prorated over a five-year period without incurring
federal 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 federal gift taxes, up to a prorated level of
$11,000 per year. Federal 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.
Other Important Considerations
The Comparison of Selected College Savings Products 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.
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 $190,000-$220,000.
3 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.
4 State tax treatments vary by state.
Consider the investment objectives, risks, fees and expenses of the Bright Start Program carefully before investing. The
Program Disclosure Statement (PDS) contains more complete information about these and other features associated
with the Program.The PDS should be read carefully before investing. Ask your financial professional for a copy of the PDS.
If you or your designated beneficiary is a resident of a state other than Illinois, you should check with your or your
designated beneficiary’s home state to see if it offers a Section 529 program.That program may offer state tax or other
benefits to residents of that state that may not be available to investors in programs of other states.