529: A Comparison Between College Accounts And Custodial Accounts
You can conduct a 529 comparison with other investment plans. There are many benefits of 529 plans compared to other savings plans. Some of the points of comparison between 529 plans and other plans are as follows:
* Maximum contribution of a 529 plan is around $55,000 per beneficiary. This is in any 5-year period to avoid federal gift tax. In comparison to 529 plan, maximum contribution in a Custodial account is $11,000 per year per beneficiary. This is again to avoid federal gift tax.
* The tax imposed on earnings in a 529 college saving plan is kept aside to be paid later. In other words 529 plans are tax-deferred. In comparison to 529 plans, earnings in a custodial account are taxable at the parent's income tax rates.
* 529 college saving plans are federally tax-free for qualified expenses. On the other hand in a custodial account the sale of the assets are liable to capital gains which are to be paid by the custodian or beneficiary.
* For withdrawals that are non-qualified there is a ten percent penalty in a 529 college saving plan. Compared to this, in a custodial account there is no penalty as such.
* In a 529 plan, state tax deduction of contributions varies by state. It depends on the functioning of the state. Whereas, in custodial accounts there are no such deductions.
* Talking about the estate tax benefits in a 529 college saving plan, funds are not taken as a part of the investor's taxable estate. In comparison to the 529 plans, in custodial account basically there are no benefits if the donor dies while being a custodian.
* The control of the account is in the hands of the owner. He controls his assets. While in a custodial account, the assets are transferred to the child after he reaches maturity.
* There are beneficiary changes allowed in 529 college saving plan. While in comparison to this, there are no beneficiary changes in a custodial account.
* In 529 college saving plan, money is attributed to the parent and not to the child. While in a custodial account, funds are attributed to the student.
* Talking about the use of assets, assets can be used in a 529 plan at any accredited institution. Funds can be used for any secondary program in the U.S. In comparison to 529 plans, in a custodial plan, use of assets is not restricted to just educational expenditures. Funds can also be used for other expenses of the child but not of parent.