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Education Investing at Schwab

Member for

11 months 3 weeks
Schwab ID
A063545
Submitted by Marc.Jones on Fri, 12/01/2017 - 14:58

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. While these accounts have lower contribution limits than a 529 account has, they can be used to pay for education expenses for students from kindergarten through college.
  • 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

 

Schwab 529 Education Savings Plan

Education savings account (Coverdell)

Schwab One Custodial Account (UGMA/UTMA)

Primary goal

Save for college expenses*

Save for elementary, secondary, or higher education expenses

Save for a broad set of goals to the benefit of the minor

Tax advantages

Tax-deferred growth potential; tax-free qualified withdrawals*

Tax-deferred growth potential; tax-free qualified withdrawals*

Potential growth taxed at special rates

Contribution limit

$402,000 lifetime limit per beneficiary

Annual limit of $2,000 (income limits apply)§

No limit

Gift limit without incurring gift tax

$75,000 ($150,000 joint) in a single year**

$2,000††

$15,000 per year ($30,000 joint)

Account ownership

Adult (or child if a custodial 529)

Adult, until assets are transferred to the student

Transfers to child at age 18 or 21‡‡

Investing options

Choice of predefined asset-allocation portfolios

Open

Open

Financial aid impact

Minimal§§

Minimal§§

Potentially significant***

Age limits

None, assets can be held indefinitely.

Contributions can be made until the beneficiary reaches age 18. Funds must be distributed to beneficiary by age 30.

Beneficiary must be under age 18 when account is opened.

Ability to change beneficiary

Anytime

Until beneficiary reaches age 30

Never

Transfers

Rollovers permitted to other 529 plans. Transfers to other accounts may be taxable.

Rollovers to 529 permitted if 529 is minor-owned. ESAs transferred to other accounts may be taxable.

Transfer to UGMA/UTMA 529 is permitted provided beneficiary remains the same. Transfers may be taxable.

More information