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How We See It

Charlotte Anderson

Charlotte Anderson

November 15, 2012

Building Support for a Child’s Education
By: Charlotte Anderson

No matter whether the figures that measure the general state of the economy are moving up or down, the costs of higher education seem to move only in one direction – up. Total costs (including tuition and living expenses) can now run as high as an estimated $54,410 annually at Sarah Lawrence College, a small, well-regarded private school in Bronxville, New York.*

Ivy League and other elite colleges cost a bit less, but not appreciably so. Total attendance cost at Harvard College for 2009-2010 is estimated at $48,868. Across the country, less expensive state institutions are debating tuition increases as legislatures cut back state funding.

 Tax-Advantaged Plans

If you’re a parent or grandparent determined to give your child or grandchild the benefit of the best education possible, you can help by employing one of the tax-advantaged college savings programs available.

 In a survey last year published by Sallie Mae, the nation’s largest college student loan company, 62% of parents of children under 18 reported saving at least something towards a college education, yet only 32% of those saving reported using a tax-advantaged vehicle, such as a 529 plan or a Coverdell Education Savings Account.

 You can save in any way you choose, of course, but the plans mentioned above, plus the Uniform Gift to Minors Act/Uniform Transfer to Minors Act, appear to be the most common choices.

 529 College Savings Plan

Every state offers a Section 529 plan that allows you to put aside funds to be invested and grow tax-deferred until the money is withdrawn, which can be done free of federal income taxes as long as the funds are used for qualified educational purposes.

 Washington’s plan is different in that it is a prepaid tuition plan only. Sixteen other states offer separate prepaid tuition plans. These vary from state to state, but in essence are designed to lock in today’s costs for future educational expenses at participating in-state institutions. The remaining states offer only 529 savings plans.


Education’s purpose is to replace an empty mind with an open one.

– Malcolm Forbes

Many see distinct advantages in using the 529 plan for several reasons:

  • Overall contribution caps tend to be very generous – most are $300,000 or higher.
  • Many states offer state residents a tax break on their contributions.
  • The funds remain the property of the contributor and, depending on ownership, may have little impact on scholarship or other financial aid possibilities.
  • A donor can combine as many as five years worth of gift tax exclusions (for 2010, $65,000, or five times the annual $13,000 exclusion) as a one-time contribution.
  • Qualified withdrawals – for tuition, books, room and board – are free of federal income tax, and usually from state income tax, if used for educational purposes.

 Investors should carefully consider the investment objectives, risks, charges and expenses associated with 529 plans before investing. This and other information about 529 plans is available in the issuer’s official statement and should be read carefully before investing.

 Investors should consult a tax advisor about any state tax consequences of an investment in a 529 plan. Plans offered outside your resident state may not provide the same tax benefits as those offered within your state.

 Coverdell Account

Previously called an “education IRA,” the Coverdell ESA allows you to save up to $2,000 a year in a tax-advantaged account – contributions are not tax deductible, but they grow free of income tax. Qualified withdrawals are tax-free at the federal level, and often at the state level, too. Any funds left in the account when the beneficiary reaches 30 must be distributed to him or her, unless special needs are involved.


You can use the Uniform Gift to Minors Act or Uniform Transfer to Minors Act to give to a minor without setting up a trust, but some investors aren’t comfortable with the rules. The gift to the minor is irrevocable, and the contributor loses control of the assets in the account, which will become the property of the child when he or she reaches the age of majority (may vary by state). Because they belong to the child, assets in the account may work against financial aid qualifications.

 *“Most Expensive Colleges for 2009-2010,”, October 19, 2009.

 Material prepared by Raymond James for use by its financial advisors.

 Securities offered through Raymond James Financial Services, Inc., Member FINRA/SIPC, and independent broker/dealer, and are not insured by bank insurance, the FDIC or any other government agency, are not deposits or obligations of the bank, are not guaranteed by the bank , and are not subject to risks, insuring possible loss of principal.  Raymond James is not affiliated with TBT or TBT Financial Services, Inc.

Raymond James financial advisors may only conduct business with residents of the state and/or jurisdictions for which they are properly registered.  Therefore, a response to a request for information may be delayed.  Please note that not all of the investments and services mentioned are available in every state.  Investors outside of the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this site.  Contact your local Raymond James office for information and availability


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