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Education Funding

Your child’s or grandchild’s college education is a significant investment in their future. Start saving for it today with any of our education savings options. Many of these plans offer tax-exempt growth and an exemption from federal income tax when withdrawals are used to pay for a beneficiary’s college costs. Talk to a Bremer Investment Services financial advisor for more information.

529 College Savings Plans

Section 529 college savings plans are tax-exempt college savings vehicles with a low impact on need-based financial aid eligibility. It offers tax-free growth and any qualified withdrawals are also tax-free. These plans are generally state-sponsored, with assets professionally managed either by a state treasurer’s office or an outside investment company. Additional plan benefits may be available depending on your state of residence.

The money in the plan is controlled by the account owner, not the child. So if the child decides to not go to college, they do not have access to the funds as they would with an UGMA account. Section 529 college savings plans are similar in many ways to retirement plans, such as 401(k)s and IRAs, although with much higher contribution limits and more favorable tax status.

Anyone can contribute money on behalf of a beneficiary. Relatives, friends, colleagues, acquaintances and even complete strangers can contribute to a child's Section 529 plan.

The favorable gift tax treatment of 529 plans makes them a good estate planning tool, especially for grandparents.

Custodial Savings (UGMA/UTMA) Accounts

The Uniform Gift to Minors Act (UGMA) established a simple way for a minor to own securities without requiring the services of an attorney to prepare trust documents or the court appointment of a trustee. The terms of this trust are established by a state statute instead of a trust document. The Uniform Transfer to Minors Act (UTMA) is similar, but also allows minors to own other types of property, such as real estate, fine art, patents and royalties, and for the transfers to occur through inheritance.

Any money in custodial accounts for which you are the custodian will be counted as part of your taxable estate if you are the legal guardian of the child and the child has not yet reached the age of trust termination.

The income from a custodial account must be reported on the child's tax return and is taxed at the child's rate, subject to the Kiddie Tax rules. The parent is responsible for filing an income tax return on behalf of the child. There is no special tax treatment for UGMA accounts.

For financial aid purposes, custodial accounts are considered assets of the student. This means that custodial bank and brokerage accounts have a high impact on financial aid eligibility.

UGMA/UTMA accounts aren’t limited to education expenses. Withdrawals can be used for anything that benefits the beneficiary.

There are no contribution limits on UGMA/UTMA accounts.

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