Education Savings

Key Points

  • Education savings plans can offer a variety of features and benefits including certain tax and contribution advantages
  • Ameriprise Financial offers a variety of education savings plan options

An Ameriprise financial advisor can help you determine how much you'll need to save based on your priorities and situation. They can walk you through the common college savings plan options available at Ameriprise and also discuss alternative investing options that may work in your situation.

529 college saving plans

Investing in a 529 plan can help you save money for college tuition and expenses with additional tax benefits that vary by state and plan.

Withdrawals can be used for qualifying higher education expenses tax free — including tuition, fees, books, certain equipment and the reasonable cost of room and board (for students enrolled at least half-time).

  • Earnings are federal income tax-free as long as the withdrawals are used for qualifying higher education expenses.
  • States sponsoring 529 plans may offer their own tax benefits on 529 plan contributions, including income tax deductions, tax credits and other benefits such as matching grants.
  • Typically, you'll only be eligible for these tax benefits if you invest in a plan sponsored by your state of residence or the state in which you pay taxes.
  • The earnings withdrawn from 529 plans that are not used for qualifying college expenses are generally subject to income tax and an additional 10% penalty. You should consult a tax advisor regarding your specific situation.

Coverdell education savings accounts (CESA)

Contribute up to $2,000 per year per beneficiary for a child's elementary, secondary and college education expenses until the day before the child's 18th birthday (unless the child is a special needs beneficiary as defined by the federal government).

Withdrawals can be used toward private school tuition, tutoring and computers, tax-free; the child must use the funds before age 30 unless they are a special needs beneficiary.

  • Contributions are not tax deductible but earnings are federal income tax-free when used for qualifying education expenses.
  • For financial aid purposes, a CESA is considered the parents' asset if the parents own the account.
  • Eligibility phases out for joint filers with incomes between $190,000 and $220,000, and for single filers with incomes between $95,000 and $110,000.

Take the next step

While some people take out loans to pay for education expenses, the interest on qualified student loans may be deductible, subject to income limitations. Talk with an Ameriprise financial advisor before tapping your home equity, spending your retirement assets or using your credit cards to pay tuition. To find out more about the right education savings plan for you, contact your Ameriprise financial advisor or locate an advisor near you.