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4 Plans to Save For Private Education Expenses

Jan 20, 2019

Preparation and saving for private school tuition now is possible and more economical than financing the cost from future cash flow. While some restrictions may exist, there are tax advantaged ways of making the costs more budget-friendly and more efficient with your overall financial planning.

529 Plan


The most largely employed education savings account. Contributions are non-deductible inside a 529 plan, however they grow tax free inside the account. The contribution limitation for 2018 is $15,000 annually per contributor or $75,000 per contributor as a 5 year "pre-paid" gift. 

If applied toward qualified secondary and post-secondary education costs, distributions are tax free. There are distribution limitations for K-12 costs. The adult retains full control as the owner of the account.

Coverdell Savings Account (ESA)/ Education IRA


The non-deductible additions grow tax free inside the account. If the funds are employed for qualified education costs, distributions are tax free given they are used for qualified costs relating to private schools, but they can be utilized for both secondary and post-secondary academic expenses.



Contribution restrictions contain several factors including amount ($2,000 annually for 2018), income limits, and age limits of the minor. Contributions are deemed a gift to the child and effectively become the property of the beneficiary if they are not used for qualified educational expenses.

Regular Custodial Accounts (UTMA/UGMA)


This account is similar to the ESA in that contributions are a gift to the college student. At age 18 the student takes possession of the account. The tax benefit is different from 529s and ESAs. Distributions do not carry additional taxes as the earnings are taxed throughout the duration of the account. 

The taxation of UTMA accounts have shifted for 2018, making it very necessary to understand how this account would be taxed for you. This account usually has a dual-purpose because the goal is to pay for education with the intention that the child will receive the balance as a "graduation gift" once he/ she has completed school. The contribution limit into an UTMA is $13,000 annually per donor for 2018.


Pre-paid State Tuition Plans


Although not available in every state, some have particular plans for resident students attending an in-state university that allows for a parent to pre-pay college expenses. The adult pays for tuition at a reduced rate and can "secure" the tuition cost for that child, years in advance. This plan is seldom used, nevertheless, because of the restriction on where the child can attend. Each state program is unique and requires further study, if being considered.

As with retirement, it is important to prepare for college costs as early as possible to take advantage of long-term growth opportunities. Any one of these options will assist in saving for those costs and relieve the pressure of tuition expenses when they come due. It is recommended that one look for the advice of a Certified Financial Planner ™ expert or tax expert when deciding which plan is best for each unique circumstance.


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