As if saving for diapers, doctors, and daycare were not enough we're come to the (painful) realization that longer term our wishes of saving for a house is not the only big ticket item - yep, that dreaded but well worth it expense, college is going to sneak up on us. With my mom's help, we discovered college alone will set us back nearly $200,000 (!!!) eeeeeeeek! While I'm sure our boys are going to be nearly famous by college time, and schools will be lining up with full scholarships, the price tag is astonishing and it's time for us to save.
After comparing possible savings accounts (below is a handy chart to reference), we went with the UGMA/UTMA Custodial Account. This account allows us to direct deposit every paycheck to start saving for the boys now and when we pull the money out for college time the tax is paid for (i.e. we're paying the tax now - we chose this as I believe taxes are lower now than they will be in 18 years). Being a Custodial Account, when the boys are 18 the money is theirs (but shh, don't tell them that - they have to use it for college).
My mom was SUPER SUPER generous and put the minimum $2,500 into each boys' account. We're going to start direct depositing immediately (my philosophy - nothing is too small right now, and if the money comes out of my paycheck before I see it, I can't miss it). We're also hoping that our parents will put money into the boys' accounts for Christmas and birthdays as the gifts.
Handy chart:
| Features | 529 College Savings Plan | UGMA/UTMA (Custodial Account) | Coverdell |
|---|---|---|---|
| Any earnings grow tax-deferred and qualified distributions are federal income tax-free. See Income Tax Benefits |  | Part of investment earnings may be tax-exempt | |
| High annual exclusion transfer tax limits. See Gift and Estate Tax Benefits | Up to $65K per Beneficiary in a single year ($130K per married couple)2 | Standard $13K annual ($26K per couple) | $2,000 annual account contribution limit |
| Beneficiary can be changed1. See Ownership and Control | | | |
| Parent (account owner) maintains control over distribution of assets. See Ownership and Control | | Distributions must be used for minor | |
| Contributions not limited by the income of the parent (account holder). See Ownership and Control | | | Cannot contribute if AGI is over $110k (for a single filer) or $220k (for a joint filer) |
| No age limit for beneficiary (child). See Contribution Limits and Other Features | | ||
| Low impact on financial aid. See Effect on Financial Aid | | | |
| Choice of investments. See Investment Management | A choice of Portfolios managed by professional fund manager | Owner (Custodian) researches and chooses investments | Owner researches and chooses investments |
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