Saving outside your plan

Gives you the advantage of tax-deferred growth.

You pay taxes now but never pay on withdrawals.

Taxes are paid when you withdraw the money. To avoid a 10% penalty, postpone taking distributions until you are at least 59¹/₂.

Your household income must be less than $140,000 in 2021 (single tax filers) or $208,000 in 2021 (joint tax filers). Talk to your financial professional to find out more.

Contributions are made with after-tax money, and your account builds earnings tax-free.

If your household situation meets the requirements, you can take a tax deduction for your contribution.

You can withdraw your earnings tax-free and penalty-free after five years and after you reach age 59¹/₂, or as a result of your death or disability, or if the earnings are used to purchase a first home. You can withdraw your contributions tax-free and penalty-free anytime.

Roth IRAs do not require withdrawals until after the death of the owner.

Generally, contributions can be made until a beneficiary’s account value reaches a certain amount. The limit varies by plan. Check the plan’s program description for details.

These accounts allow you to save $2,000 per child per year on an after-tax basis, and earnings can grow tax-free.

Uniform Gift to Minors Act accounts (UGMA) or Uniform Trust to Minors Act accounts (UTMA) allow you to invest on behalf of a child’s education with the earnings taxed at a special rate.

Individuals can contribute up to $15,000 ($30,000 for couples) each year without gift-tax consequences.

Qualified withdrawals are tax-free and can be used for such things as required books, tuition, fees and room and board at most elementary, secondary and post-secondary schools.

For children under age 19 or full-time students under the age of 24 whose earned income does not exceed one half of their support, the first $1,100 of earnings is tax-free.

Under a special election you can accelerate up to five years’ worth of investments and contribute up to $75,000 ($150,000 for married couples) at one time without gift-tax consequences. No additional gifts can be made to that beneficiary over the next four years after the year in which the one-time gift is made. If the donor of an accelerated gift dies within the five-year period, a portion of the transferred amount will be included in the donor’s estate for tax purposes. Consult with a tax advisor regarding your specific situation.

Withdrawals for K-12 and post-secondary education are tax-free.

Earnings between $1,100 and $2,200 are taxed at the child’s rate.

The money is contributed on an after-tax basis, and your investments grow federally tax-free. Tax-advantaged treatment applies to savings used for qualified education expenses. State tax treatment varies.

Income tax and a 10% federal tax penalty apply to nonqualified withdrawals

Earnings above $2,200 are taxed at the parents’ rate.

Withdrawals used for qualified higher education at accredited colleges or universities and K-12 tuition (up to $10,000 a year per beneficiary) as well as certain student loan expenses (up to a $10,000 lifetime maximum) and certain apprenticeship program expenses are free from federal taxes.

The funds must clearly be set aside for the child.

Income tax and a 10% federal tax penalty apply to nonqualified withdrawals.

At the age of majority (usually age 18 or 21), the child takes control of the account.

If withdrawals are used for purposes other than qualified education expenses, the earnings will be subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax. States take different approaches to the income tax treatment of withdrawals. For example, withdrawals for K-12 expenses may not be exempt from state tax in certain states.