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How the Different Education Plans Compare

Table 9.1

Mutual Funds

UGMA/UTMA Accounts

Traditional and Roth IRAs

Education IRA

Series EE Savings Bonds

Section 529 Plans

All earnings and gains are taxed at owner’s rate. No special tax benefits apply.

If child is under age 14, first $750 of earnings is tax-exempt, next $750 taxed at child’s rate and any remaining at parent’s rate. After age 14, all earnings tax at child’s rate.

Traditional IRA may be tax deductible; withdrawals taxed at owner’s rate. Roth earnings are tax-exempt if taken after age 59 2.

1

Earnings are exempt from federal taxes as used for qualifying education expenses.

Earnings are tax-exempt for state and local taxes; Tax-deferred for federal taxes.

Federally tax-free withdrawals for higher education; tax-deferred earnings.

Tax benefits

166

None.

None.

$3000/year. Will increase to $5,000/year by 2008.

$2000/year for each beneficiary.

$15,000/year.

Varies by state. May be as high as $250,000 per beneficiary.

Investment limits

Any expense pertains.

Any expense pertains.

Same as for the Section 529 plan.

Same as for the Section 529 plan.

Tuition, fees, and other “credible” education costs.

Tuition, fees, books, supplies, room and board, and equipment.

Qualified expenses

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