College savings

Other ways to save

The differences between education savings plans are significant. Tax benefits, control, and the types of investments are important factors to consider.

UGMA/UTMA Accounts
The Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) permit the transfer of assets into an account set up for the benefit of a minor. Once transferred, the assets in these accounts belong to the beneficiary and cannot be revoked, which can be beneficial in estate planning. The designated custodian of the account is responsible for managing the assets until the minor inherits full control over the account. Generally, beneficiaries gain full control over UGMA accounts at age 18 and UTMA accounts at age 21, but the exact age varies from state to state. Assets in an either account may include cash, securities, or mutual funds; UTMA accounts may also include real estate, works of art, or precious metals.

Coverdell Education Savings Account
Putnam Coverdell Education Savings Accounts can be established for a child under age 18 and used for elementary, secondary, or post-secondary education expenses. The account is funded with after-tax contributions, which may be invested in any Putnam mutual fund. Assets accumulate tax free, and qualified withdrawals are free from federal income tax. Contribution amounts are subject to income limitations, with a maximum contribution of $2,000 a year.

Education Savings Bonds
U.S. Savings Bonds offer a low-risk and modest return investment for college savers. Under certain circumstances, Series EE Savings Bonds and Series I Savings Bonds also offer special tax benefits when used for qualified education expenses. Savings bonds are considered very safe investments, since they are backed by the full faith and credit of the US government.