Education Investing at Schwab

Schwab offers two convenient, tax-advantaged ways to save for qualified education expenses: the Schwab 529 Education Savings Plan and an education savings account (ESA). Contributions can be made to an ESA and a Schwab 529 Plan for the same student in the same year. Schwab also offers a Schwab One® Custodial Account, which can be used to support education expenses. Each option has different advantages:

  • Schwab 529 Education Savings Plan: A 529 savings plan is a state-sponsored education savings program that allows individuals, regardless of their income or state residency, to set aside assets in a tax-deferred account to pay for a student’s education expenses. The Schwab 529 Education Savings Plan is administered by the state of Kansas with American Century Investments® as the program manager.
  • Education savings account: An ESA, sometimes called a Coverdell account, is a savings plan set up and managed by a parent or other adult for the benefit of a minor. Like a 529 savings plan, these tax-deferred accounts allow individuals to pay for a student's education expenses but have lower contribution limits than a 529 savings plan.
  • Schwab One Custodial Account (UGMA/UTMA): While not explicitly an education savings vehicle, a Schwab One Custodial Account can be used to support education funding goals. The account is established under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA) and is used to pass irrevocable gifts to a minor or as a savings account for the child.

Compare the options

Table

  • Schwab 529 Education Savings Plan
  • Education savings account (Coverdell)
  • Schwab One Custodial Account (UGMA/UTMA)
  • Primary goal
  • Schwab 529 Education Savings Plan
    Save for elementary, secondary, or higher education expenses1
  • Education savings account (Coverdell)
    Save for elementary, secondary, or higher education expenses
  • Schwab One Custodial Account (UGMA/UTMA)
    Save for a broad set of goals to the benefit of the minor
  • Tax advantages
  • Schwab 529 Education Savings Plan
    Tax-deferred growth potential; tax-free qualified withdrawals2
  • Education savings account (Coverdell)
    Tax-deferred growth potential; tax-free qualified withdrawals3
  • Schwab One Custodial Account (UGMA/UTMA)
    Potential growth taxed at special rates4
  • Contribution limit
  • Schwab 529 Education Savings Plan
    $450,000 lifetime limit per beneficiary5
  • Education savings account (Coverdell)
    Annual limit of $2,000 (income limits apply)6
  • Schwab One Custodial Account (UGMA/UTMA)
    No limit
  • Gift limit without incurring gift tax
  • Schwab 529 Education Savings Plan
    $75,000 ($150,000 joint) in a single year7 
  • Education savings account (Coverdell)
    $2,0008
  • Schwab One Custodial Account (UGMA/UTMA)
    $15,000 per year ($30,000 joint)
  • Account ownership
  • Schwab 529 Education Savings Plan
    Adult (or child if a custodial 529)
  • Education savings account (Coverdell)
    Adult, until assets are transferred to the student
  • Schwab One Custodial Account (UGMA/UTMA)
    Transfers to child at age 18 or 219
  • Investing options
  • Schwab 529 Education Savings Plan
    Choice of predefined asset-allocation portfolios
  • Education savings account (Coverdell)
    Open
  • Schwab One Custodial Account (UGMA/UTMA)
    Open
  • Financial aid impact
  • Schwab 529 Education Savings Plan
    Minimal10
  • Education savings account (Coverdell)
    Minimal11
  • Schwab One Custodial Account (UGMA/UTMA)
    Potentially significant12
  • Age limits
  • Schwab 529 Education Savings Plan
    None; assets can be held indefinitely.
  • Education savings account (Coverdell)
    Contributions can be made until the beneficiary reaches age 18. Funds must be distributed to beneficiary by age 30.
  • Schwab One Custodial Account (UGMA/UTMA)
    Beneficiary must be under age 18 when account is opened.
  • Ability to change beneficiary
  • Schwab 529 Education Savings Plan
    Anytime
  • Education savings account (Coverdell)
    Until beneficiary reaches age 30
  • Schwab One Custodial Account (UGMA/UTMA)
    Never
  • Transfers 
  • Schwab 529 Education Savings Plan
    Rollovers permitted to other 529 plans. Transfers to other accounts may be taxable. 
  • Education savings account (Coverdell)
    Rollovers to 529 permitted if 529 is minor-owned. ESAs transferred to other accounts may be taxable.
  • Schwab One Custodial Account (UGMA/UTMA)
    Transfer to UGMA/UTMA 529 is permitted provided beneficiary remains the same. Transfers may be taxable.

Learn more

  • Learn more about education investing

    Learn more about the Schwab 529 Education Savings Plan and the investment options available to your clients.

  • Have questions?

    Contact us to find a local representative.

(0721-1S29 )

1. Qualified education expenses can include tuition, fees, books, supplies, equipment, and room and board. Certain costs associated with K-12 tuition, participation in a registered apprenticeship program, or payment of a qualified education loan up to $10,000 may also be considered qualified education expenses. The earnings portion of a nonqualified withdrawal is subject to federal and state income tax and a 10% penalty. State tax treatment of earnings may vary. Check with your tax advisor for rules on your state’s tax treatment. The availability of tax or other benefits may be conditioned on meeting certain requirements, such as residency, purpose for or timing of distribution, or other factors. Clients should consult a qualified tax advisor to discuss their individual situation. 

2. Same as above. 

3. Same as above.

4. For a child under age 19 (or under age 24 if a full-time student), the first $2,200 of child's unearned income is tax-free. Amounts over the $2,200 threshold will be taxed at the rates for trusts and estates. (See IRS Publication 929 for more detail).

5. The contribution limit is reached when the entire value of all Kansas 529 plans for one beneficiary reaches $450,000 through a combination of contributions and account appreciation. The state treasurer may review and adjust the contribution limit as needed.

6. The contributor's adjusted gross income must be less than $95,000 ($190,000 per couple) to contribute $2,000. No contributions are allowed when the contributor's adjusted gross income is $110,000 ($220,000 per couple) or more.

7. To qualify for the special lump-sum gift-tax exclusion, you need to file a gift-tax return to treat the gift as if it were made in equal payments over five years. To avoid gift tax, you should make no additional gifts to the beneficiary during those five years.

8. Applies toward the annual gift-tax exclusion.

9. Generally, a child gains control of the account at age 18 or 21 (varies by state).

10. Parent-owned accounts are considered parental assets when calculating financial aid eligibility. Only 5.6% of parental assets and income are reflected in financial aid calculations. Financial impact depends upon the investor's financial situation.

11. Same as above.

12. 20% of the account value is considered to be the student's asset for financial aid calculations.

Before investing, carefully consider the Plan’s investment objectives, risks, charges, and expenses. This information and more about the Plan can be found in the Schwab 529 Education Savings Plan Guide and Participation Agreement, available from Charles Schwab & Co., Inc., and should be read carefully before investing. If you are not a Kansas taxpayer, consider before investing whether your or the beneficiary's home state offers a 529 plan that provides its taxpayers with state tax and other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available in such state’s qualified tuition program. Tax and financial aid treatment of 529 plans is subject to change. As with any investment, it is possible to lose money by investing in this plan.

 

The Schwab 529 Education Savings Plan is available through Charles Schwab & Co., Inc. and is managed by American Century Investment Management, Inc. The Plan was created by the Kansas State Legislature under the provisions of Section 529 of the Internal Revenue Code and is administered by the Kansas State Treasurer. Notice: Accounts established under the Schwab 529 Education Savings Plan and their earnings are neither insured nor guaranteed by the State of Kansas, the Kansas State Treasurer, American Century Investments®, or Charles Schwab & Co., Inc. Accounts established under the Schwab 529 Education Savings Plan are domiciled at American Century Investments and not Schwab.

American Century Investments receives remuneration from fund companies, including American Beacon Advisors, Metropolitan West Management, LLC, and JP Morgan Funds for recordkeeping, shareholder services, and other administrative services associated with funds held in the Schwab 529 Education Savings Plan portfolios.

Schwab and the Plan’s Program Manager, American Century Investment Management, Inc., have designed the investment strategy and investment options to require or favor the selection of Schwab-affiliated funds, American Century funds, and certain third party mutual funds that have a business relationship with Schwab or American Century. Accordingly, there is a conflict of interest in the selection of the funds for the portfolios because Schwab, a Schwab affiliate, or American Century, respectively, earn more revenue as a result. The selection of specific mutual funds for the portfolios is subject to the oversight and approval of the Program Administrator. For more information on the financial arrangements between Schwab and the Program Manager, and between the Program Manager and the underlying funds, please see the “Fees and Expenses” section within the “Schwab 529 Education Savings Plan Guide and Participation Agreement.”

Information provided is for general purposes only and is not intended to be a substitute for specific individualized tax or legal advice. Where specific advice is necessary or appropriate, please consult a qualified tax or legal advisor.

American Century Investment Services, Inc., Distributor.