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Preparing for the Increasing Costs of Higher Education cont.

529 Plans (technically known as qualified state tuition plans) allow parents; grandparents and

anyone else interested in saving for college to contribute money into a tax-deferred account

for higher education. Regardless of income levels, a donor may contribute $11,000 per year

per beneficiary or $55,000 in a single five-year period ($110,000 for married couples) without

triggering gift taxes. The earnings in college savings plans grow tax-deferred from Federal

taxes. When funds are withdrawn they are received Federal income tax-free if used for

qualified expenses (tuition, books, room and board). If a child decides not to attend college,

you can defer use of the account, change beneficiaries or withdraw the assets. If the assets are

withdrawn and not used for higher education, regular taxes and a 10 percent penalty may be

imposed on the earnings.

Coverdell Education Savings Accounts (formally Educational IRAs) allow parents,

grandparents and others to contribute cumulatively up to $2,000 a year for qualified

elementary, secondary school and higher education expenses of a child. Withdrawals from a

Coverdell Education Savings Accounts are Federal income tax-free if used for qualified

expenses such as tuition, room and board. Beneficiaries of the Coverdell can be transferred to

another family member to pay for educational expenses. If the account is not used by age 30

or the funds are not used for higher education, regular income taxes and a 10 percent penalty

may be imposed on the earnings.

Custodial Accounts (UGMA/UTMA) are created for a minor usually at a mutual fund

company or brokerage firm. This account provides a simple way to transfer property to a

minor without the complications of a formal trust. When the child reaches age of majority

(age 18 or 21 depending on the state), the child then has full discretion over the account. Any

earnings on the account up to $750 are tax free if the child is under age 14. Earnings from

$750 to $1500 will be taxed at the child’s tax rate. Earnings over $1,500 are taxed at the

parent's highest marginal tax rate (for children under 14 years of age). For children over 14,

the earnings are taxed at the child’s tax rate.

Determining which approach is best can be a difficult task. A financial professional can help

you develop a disciplined approach to saving for college costs. Together, you can determine

Securities and Advisory Services offered through registered representatives of Lincoln Financial Securities Corporation Registered Broker/Dealer, Member FINRA SIPC Eugene W. Harris & Co. and Lincoln Financial Securities Corporation are not affiliated.