By Kristina Ludwig, Fall 2014 Student Intern
Custodial accounts are another tax-advantaged way for parents to save for their child’s college education. Custodial accounts are also referred to as Uniform Gift to Minors Act (UGMA) accounts and Uniform Transfer to Minors Act (UTMA) accounts.
UGMA accounts are limited to money and securities while UTMA accounts can hold other types of property, like real estate, fine arts, and royalties. Both can be set up at almost any financial institution.
Another tax-advantaged method to save for college is U.S. Series EE savings bonds (issued after 1989) or Series I savings bonds. Series EE savings bonds are safer, low-risk savings products. They pay interest based on current market rates for up to thirty years, and when the bond owner redeems the bond to pay for qualified higher education expenses, the interest is exempt from federal taxation, as well as typically from state and local taxes. These bonds are also backed by the full faith and credit of the government. There are, however, income limits, which are discussed in more detail on FINRA’s website here.
For more information about how to use savings bonds for education planning, visit the Treasury Direct website here.