Save for College
The following savings plans are designed to help families set aside funds for future college costs.
Education IRAS or Coverdell Educational Savings Accounts
An Education IRA is a savings plan for higher education. The education IRA is now referred to as the Coverdell ESA. For more information, visit http://www.irs.gov/ (click on Coverdell Education Savings Accounts)
Quick facts:
- Parents and guardians are allowed to make contributions for any child under the age of 18.
- Can contribute up to $2,000 per year per child
- Contributions are not tax deductible; however, account grows tax free until distributed.
- Distributions are tax-free as long as they are used for qualified education expenses (tuition, fees, books, supplies, room & board). Virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions are eligible.
- Can also be used for tuition at elementary and secondary schools
- Tax credits (such as American Opportunity and Lifetime Learning) can be claimed in the same the student beneficiary takes a tax-free distribution as long as the credits are for different expenses.
- If the distribution exceeds the education expenses, a portion will be taxable to the student beneficiary.
529 College Savings Plans
529 College Savings Plans are state sponsored savings plans. Like the Coverdell ESA, the earnings are tax free as long as the money is used to pay qualified college expenses. For more information, visit montana.collegesavings.com.
Quick facts:
- No specific age restrictions
- Can contribute up to $340,000 per beneficiary in the Montana state plan.
- Contributions are not tax deductible but account grows tax-deferred.
- Distributions for college costs are tax-free. Withdrawals for non-education expenses are subject to income and penalty taxes
- No reporting of earnings until you make a withdrawal
- Donor decides when withdrawals are taken, for what purpose, etc. Donor can also replace the beneficiary at any time