There are a number of different options to help save and invest for college. The following covers 4 options to help make the choice for you or your family.

529 Savings plan

Every state now offers its own 529 savings plan. Though all plans aren’t created equal, they all share a key benefit: any earnings on your investment grow tax-advantaged and aren’t subject to federal tax when the plans’ funds are used to cover the costs of “qualified education expenses.” Qualified expenses include tuition, fees, computer technology, books, or room and board. Anyone can establish a 529 savings plan for any future student, but those who have several years before the student will attend college will potentially benefit the most. All 529 plans vary in the investment options and incentives they offer, their historical performance, management style, and fees. Though you don’t have to select the plan offered by the state you live in, there may be tax advantages to doing so. The availability of such tax or other benefits may be conditioned on meeting certain requirements; consider speaking with a tax professional for guidance on your situation.

Please consider the investment objectives, risks, charges, and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your Financial Advisor. Read it carefully before you invest. Non-qualified withdrawals are subject to federal and state income tax and a 10% penalty. You can also purchase a 529 savings plan through Wells Fargo Advisors.

529 Plan prepaid tuition plans

Some private schools and states also offer a different type of 529 plan called a prepaid tuition plan. Essentially, the plan allows the parent to “lock in” current tuition rates that are expected to increase. The prepaid tuition plan is exempt from federal tax, and in some cases state and local taxes. With a 529 prepaid plan, anyone can make a contribution for the beneficiary, but the plan is an asset of the account owner, not the beneficiary. If the student decides not to attend college, the plan can be transferred to another beneficiary. If the child decides to attend a different college, some of the prepaid tuition balance may be applied to tuition at another school, but the student or family will be responsible for the difference.

Education savings accounts (ESA)

There are income eligibility standards that determine who can contribute to an ESA, and contributions cannot exceed $2,000 per beneficiary per year. If you qualify, funds deposited in an ESA have tax-advantaged growth potential. If the distributions do not exceed the enrolled student’s education costs, they may not be taxed either, provided the funds are used for expenses at a qualified educational institution that requires tuition — including private elementary and secondary schools. If the distribution exceeds the expenses related to education, the earnings portion is subject to federal tax at 10% (contribution amounts when withdrawn are not taxed). Unused balances can be rolled over to another family member before the beneficiary is 30 years old or the amount will also be taxed at 10%.

Custodial Account

Custodial accounts used to be a popular way to give money to a child to help pay for college expenses, but there are risks to consider. Once money is put into a custodial account for a child, it belongs to the child. The beneficiary could determine not to use the money for college once he or she turns of “legal age” on the account (which could be as young as 18). Unlike a 529 plan, a significant balance in a custodial account could also reduce the child’s financial aid eligibility. If the account exceeds $1,000, he or she may also have to pay significant taxes on the money under “kiddie tax” laws. You can legally gift up to $15,000 to a child ($30,000 for married couples who file jointly) and not be required to pay taxes on the gift or file a gift tax return.

Though there are many investment tools designed to help prepare for the costs of higher education, their features and benefits can be very different. Do your research and start saving early to reap the most potential from whatever investment you choose.

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