College Savings Vehicles

Below is a comparison of the major funding vehicles for college savings.  Listed first are 529 Plans, Coverdell ESA's, and custodial accts (UGMA/UTMA).  Listed below these are Roth & Traditional IRA's, followed by US Savings Bonds and Mutual Funds.  Please contact us for further information about establishing accounts or determining which accounts are best for you.

YEAR 2007 RULES	529 Plan	Coverdell Education Savings Accounts	UGMA/UTMA
Federal Income Tax	Non-deductible contributions; withdrawn earnings excluded from income to extent of qualified higher education expenses	Non-deductible contributions; withdrawn earnings excluded from income to extent of qualified higher education expenses and qualified K-12 expenses	Earnings and gains taxed to minor; first $850 of unearned income is tax exempt; unearned income over $1,700 for minors below age 18 on 12-31 taxed at parents rate
Federal Gift Tax Treatment	Contributions treated as completed gifts; apply $12,000 annual exclusion, or up to $60,000 with 5-year election	Contributions treated as completed gifts; apply $12,000 annual exclusion	Transfers treated as completed gift; apply $12,000 annual gift exclusion
Federal Estate Tax Treatment	Value removed from donor's gross estate; partial inclusion for death during a 5-year election period	Value removed from donor's gross estate	Value removed from donor's gross estate unless donor remains as custodian
Maximum Investment	Established by the program; many in excess of $250,000 per beneficiary	$2,000 per beneficiary per year combined from all sources	No limit
Qualified Expenses	Tuition, fees, books, supplies, equipment, and special needs; room and board for minimum half-time students	Tuition, fees, books, supplies, equipment, and special needs; room and board for minimum half-time students; additional categories of K-12 expenses	No restrictions
Able to Change Beneficiary	Yes, to another member of the beneficiary's family	Yes, to another member of the beneficiary's family	No; represents an irrevocable gift to the child
Time/Age Restrictions	None unless imposed by the program	Contributions before beneficiary reaches age 18; use of account by age 30	Custodianship terminates when minor reaches age established under state law (generally 18 or 21)
Income Restrictions	None	Ability to contribute phases out for incomes between $190,000 and $220,000 (joint filers) or $95,000 and $110,000 (single)	None
Federal Financial Aid	Counted as parental asset if parent is account owner; not reported if dependent student is account owner	Counted as parental asset if parent is account owner; not reported if dependent student is account owner	Counted as student's asset
Investments	Menu of investment strategies as developed by the program	Broad range of securities and certain other investments	As permitted under state laws
Use for Nonqualifying Expenses	Withdrawn earnings subject to federal tax and 10% penalty	Withdrawn earnings subject to federal tax and 10% penalty	Funds must be used for benefit of the minor

YEAR 2007 RULES	Roth IRA	Traditional IRA
Federal Income Tax	Non-deductible contributions; withdrawn earnings excluded from income after age 59 ½ and five years; 10% penalty on early withdrawals waived if used for qualified higher education expenses	Deductible or non-deductible contributions; withdrawals in excess of basis subject to tax; 10% penalty on early withdrawals waived if used for qualified higher education expenses
Federal Gift Tax Treatment	No gift involved	No gift involved
Federal Estate Tax Treatment	Value included in the owner's gross estate	Value included in the owner's gross estate
Maximum Investment	$4,000 in 2007 ($5,000 for taxpayers age 50 and over); increasing to $5,000 (and $6,000) in 2008	$4,000 in 2007 ($5,000 for taxpayers age 50 and over); increasing to $5,000 (and $6,000) in 2008
Qualified Expenses	Same as 529 plan	Same as 529 plan
Able to Change Beneficiary	Not applicable	Not applicable
Time/Age Restrictions	Withdraw earnings tax-free only after five years and age 59 1/2	Withdraw without penalty only after age 59 1/2
Income Restrictions	Must have taxable compensation; contribution limit phases out for incomes between $156,000 and $166,000 (joint filers) or $99,000 and $114,000 (single)	Must have taxable compensation; amount deductible reduced or eliminated for taxpayers who participate in an employer retirement plan and have income above certain limits
Federal Financial Aid	Not counted as asset; withdrawals of principal and interest counted as financial aid income	Not counted as asset; withdrawals of principal and interest counted as financial aid income
Investments	Broad range of securities and certain other investments	Broad range of securities and certain other investments
Use for Nonqualifying Expenses	Taxable portion of withdrawal prior to age 59 1/2 also subject to 10% early withdrawal penalty	Taxable portion of withdrawal prior to age 59 1/2 also subject to 10% early withdrawal penalty

YEAR 2007 RULES	Qualifying U.S. Savings Bonds	Mutual Funds
Federal Income Tax	Tax-deferred for federal; tax-free for state; certain post-1989 EE and I bonds may be redeemed federal tax-free for qualified higher education expenses	Earnings and gains taxed in year realized; special lower tax rates for certain dividends and capital gains
Federal Gift Tax Treatment	No gift as qualifying bonds must be owned by the parent	No gift involved; direct payments of tuition not considered gifts
Federal Estate Tax Treatment	Value included in bond owner's gross estate	Value included in the owner's gross estate
Maximum Investment	$30,000 face value per year, per owner, per type of bond	No limit
Qualified Expenses	Tuition and fees	No restrictions
Able to Change Beneficiary	Not applicable	Not applicable
Time/Age Restrictions	Bond purchaser must be at least 24 years old at time of bond issuance	None
Income Restrictions	Interest exclusion phases out for incomes between $98,400 and $128,400 (joint filers) or $65,600 and $80,600 (single)	None
Federal Financial Aid	Counted as asset of bond owner	Counted as asset of the owner
Investments	Interest-earning bond backed by full faith and credit of U.S. government	Mutual funds
Use for Nonqualifying Expenses	No penalty; interest on redeemed bonds included in federal income	No restrictions

Material discussed is meant for general illustration and/or informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice.

Dominion Financial Group does not render legal, accounting, or tax advice. Please consult your CPA or attorney on such matters.The accuracy and completeness of this material are not guaranteed. The material is distributed solely for information purposes and is not a solicitation of an offer to buy any security or instrument or to participate in any trading strategy. Provided courtesy of Dominion Financial Group. Securities offered by a Registered Representative of Sammons Securities Company, LLC. Member FINRA/SIPC.