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Other saving options

Coverdell Education Savings Accounts and UGMA/UTMA accounts are also available for college saving. Your financial adviser can help you better understand your options and which ones may be appropriate for you.

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Coverdell Education Savings Account

These accounts can play an important role in helping pay for a child’s qualified elementary, secondary and higher education expenses.


You can contribute to a Coverdell Education Savings Account even if you don’t have earned income. Contributions are made with after-tax dollars, and you cannot take a deduction for the contribution. Your contribution is limited to $2,000 per year per child until the child reaches the age of 18. Contributions are phased out as your adjusted gross income increases from $190,000 to $220,000 for married couples filing jointly and from $95,000 to $110,000 for individuals.

Income tax treatment

Earnings grow tax-free.


Withdrawals used for qualified education expenses — required books, tuition and room and board for kindergarten through high school, college and graduate school — are free from federal income tax.

If any balance remains in the account after all education expenses are paid for, the account can be rolled over to another Coverdell Education Savings Account for another eligible family member. If the beneficiary, also called the recipient, reaches age 30 and the balance has not been rolled over, the account balance must be distributed as ordinary income, with income taxes and a 10% penalty on earnings due.

Withdrawals for non-education expenses may be subject to federal income tax and a 10% federal tax penalty on earnings.

Credits/qualified tuition program

The beneficiary can claim an American Opportunity Tax Credit (formerly the HOPE Scholarship Credit) or Lifetime Learning credit and take a qualified distribution from a Coverdell Education Savings Account in the same year as long as the amounts are used to pay for different educational purposes.

Contributions can be made to a Coverdell Education Savings Account and to a qualified tuition program for the same beneficiary in the same tax year as long as the amounts are used to pay for different educational purposes. 

UGMA/UTMA account

The Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA) allow you to take advantage of the lower tax rate for children while saving for education.


Anyone can give up to $14,000 per child each year free of gift tax consequences ($28,000 for married couples).* Because contributions are made with after-tax dollars, a deduction cannot be taken. Your child doesn’t gain control of the money until he or she reaches the age of majority (18 or 21 in most states).

Income tax treatment

For children under age 19 and full-time students under age 24 whose earned income is less than one-half of their support, the first $1,000 of earnings is tax-free. Earnings between $1,000 and $2,000 are taxed at the child’s rate; earnings above $2,000 are taxed at the parents’ rate.

Other considerations

There are a few things to consider when evaluating UGMAs and UTMAs:

  • Once you’ve given the money away, you cannot get it back for your own use.
  • Once a child reaches the age of majority, he or she is entitled to the account.


* The amount is indexed for inflation and may increase over time.

Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses, summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.