Saving Options Comparison
| Arizona’s Education Savings Plan | Coverdell Educational Savings Accounts | Qualifying U.S. Savings Bonds | UGMA/UTMA | Individual Mutual Funds/Stocks | |
|---|---|---|---|---|---|
| Federal Income Tax | Non-deductible contributions: federal and Arizona income tax-free when used for qualified higher education expenses; Arizona income tax deduction up to $2,000 (single) or $4,000 (joint) | Non-deductible contributions; federal income tax-free when used for qualified higher education expenses, or qualified K-12 expenses | Tax-deferred for federal; tax-free for state; certain post-1989 EE and I bonds may be redeemed federal tax-free for qualified higher education expenses | Earnings and gains taxed to minor; parental tax rate applies to unearned income over $2,200 for children through age 23 | Earnings and gains taxed in year realized; special lower tax rates for certain dividends and capital gains |
| Federal Gift Tax Treatment | Contributions treated as completed gifts; use $15,000 annual exclusion, or up to $75,000 with 5-year election | Contributions treated as completed gifts; use $15,000 annual exclusion. 5-year election only available under special circumstances | No gift involved; qualifying bonds must be owned by the parent | Transfers treated as completed gift; use $15,000 annual gift exclusion | No gift involved; direct payments of tuition are not considered gifts |
| Federal Estate Tax Treatment | Value removed from donor’s gross estate; partial inclusion for death during a 5-year election period |
Value removed from donor’s gross estate | Value included in bondholder’s gross estate | Value removed from donor’s gross estate unless donor remains as custodian | Value included in the owner’s gross estate |
| Maximum Investment | $476,000 per beneficiary effective October 1, 2018 |
$2,000 per beneficiary per year combined from all sources | $10,000 face value per year, per owner, per type of bond | No limit | No limit |
| Qualified Expenses | Higher Education Expenses – Tuition, fees, room and board, books, supplies, equipment, computer and related software, peripheral equipment and internet access, and special needs services
Elementary and Secondary Education Expenses – Up to $10,000 in tuition expenses for enrollment or attendance at an eligible K-12 private, religious or public school as of January 1, 2018 |
Same Higher Education Expenses as 529 plan plus specific categories of K-12 expenses | Tuition and required course-related fees, books and equipment. | No restrictions | No restrictions |
| Income Restrictions | None |
Ability to contribute may be pro-rated or reduced to zero for Modified Adjusted Gross Incomes between $95,000 and $110,000 for single tax payers; or between $190,000 and $220,000 for married tax payers filing jointly
|
Interest exclusion is pro-rated or reduced to zero for Modified Adjusted Gross Incomes between $81,101 and $96,100 for single tax payers; or between $121,601 and $151,600 for married tax payers filing jointly | None | None |
| Federal Financial Aid | Counted as asset of parent or other account owner; not counted as a student asset unless student is both the account owner and beneficiary | Counted as asset of parent or other account owner; not counted as a student asset | Counted as asset of bondholder | Counted as student’s asset | Counted as asset of the owner |
| Use for Non-Qualifying Expenses | Withdrawn earnings subject to 10% federal penalty, and both federal and state taxes | Withdrawn earnings subject to federal tax and 10% penalty | No penalty; interest on redeemed bonds included in federal income | Funds must be used for benefit of the minor | Money can be withdrawn at any time for any reason |
Arizona’s Education Savings Plan is not insured by the State of Arizona or any of the program providers. Neither the principal deposited nor the investment return is guaranteed by the State of Arizona or the program providers.