Although utilized on a lesser basis than 529 Plans, additional education planning and investing vehicles to consider include:

Taxable Savings

• Maintain ownership control
• Higher taxes

Uniform Gift (or Transfer) to Minors Act (UGMA OR UTMA) offers favorable tax advantages as part of your education planning and funding strategy when a mutual fund account is established in a child’s name.

• Lower tax rate than investments made in parents’ name
• Parents retain control over investments until the child turns 18 (in Michigan) 
• Contributions can be made as desired 
• Earnings are not restricted to education expenses

Irrevocable Trusts

• Maintain control of assets 
• High tax rates 
• Expensive to establish and maintain

Traditional or Roth IRA Distribution

• IRA withdrawals may be taken without penalty if used to pay qualified higher education expenses

Coverdell Education Savings Account

• Formerly known as Education IRA 
• Account grows free of federal income taxes 
• Use of tax credits: Lifetime Learning Credit and HOPE Scholarship: 
  • The Hope Scholarship is a tax credit, not a scholarship. Your family may claim a federal income tax credit up to $1,500 for each eligible dependent during the first two tax years of post-secondary education. 
  • The Lifetime Learning Credit is also tax credit. As of tax year 2004 your family may claim a tax credit of up to $2,000 per tax year for the taxpayer, taxpayer's spouse, or any eligible dependents for an unlimited number of tax years. The amount of the Lifetime Learning Tax Credit is 20 percent of the first $10,000 of qualified educational expenses paid for all eligible students. 
  • Income limitations apply for each of these tax credits.

Tax-savings from shifting income to children

The above descriptions are an overview of the plethora of choices for education savings. For more information regarding all of our financial planning for education funding consulting services, please review our Education Planning section.