Education and Funding Strategy

A tax-advantaged investment account designed as a way to save for education expenses.

Benefits

• Investments grow tax free.
• Withdrawals aren't subject to federal tax when used for qualified education expenses.
• You can front-load your contributions, making five-year gifts in a single year.
• Easy to establish and maintain.
• Certain states provide state tax deduction for contributions.

Disadvantages

• You’re limited to the investment options offered by the 529 plan.
• Using the annual exclusion gift to fund a 529 means you can’t use the exclusion for other purposes.

A tax-advantaged account that can be used for any level of education and has little impact on financial aid eligibility.

Benefits

• Earnings accrue free of income tax.
• Distributions may be made free of income tax as long as they're made for qualified education expenses.
• Assets may be invested in almost any product, including stocks, bonds and mutual funds.
• Easy to establish and maintain.

Disadvantages

• Maximum investment is limited to $2,000 per year, per beneficiary. The $2,000 contribution maximum is gradually phased out if your modified adjusted gross income falls between $190,000 and $220,000 ($95,000 and $110,000 for single filers).
• Contributions must be made before the beneficiary reaches age 18.

Specialized accounts that can be used for a child's general benefit, not just for education.

Benefits

• The UGMA (Uniform Gift to Minors Act) and UTMA (Uniform Transfer to Minors Act) are custodial accounts that can be applied across a variety of financial needs, not just college funding.
• The custodian can invest the account’s assets in any manner they choose.

Disadvantages

• Custodial accounts are considered assets of the student and are turned over to them when they reach the age of maturity, and also may limit financial aid eligibility.
• Using annual exclusion gifts to fund an UTMA account may prevent the use of the exclusion for other purposes.
• These accounts are typically taxed at the same rate paid by the parents.

A 529 plan is a tax-advantaged investment product designed as a means of investing for education expenses.

Yes. A rewrite of the U.S. federal tax code in December 2017 allows money in 529 plans to be used to pay for tuition in grades K-12. At the time of the rewrite, some states needed to make amendments to their state-level 529 rules so participants can fully reap the tax-free benefits. A J.P. Morgan Advisor can recommend a plan that helps you invest for tuition and other education costs.

Choosing the right savings plan and following time-tested investment strategies may help you reduce taxes, increase growth potential and accumulate more for education. Plus, there's this: it costs less to invest now than to borrow later.

While many students qualify for some financial aid, only 0.3% of college students receive a "free ride" from needs-based grants and merit-based scholarships. We’ll help you understand the many ways to pay for college and how financial aid is one piece of the pie — but probably not the whole pie.

This is a tough call, and a personal one. Taking on additional debt now could compromise your financial future. After all, there is no such thing as financial aid for your retirement. Borrowing to pay for college is a big decision so make sure you consider the risks.

Prioritizing your goals doesn't always mean ranking them by what’s next on the horizon. You don’t want to achieve one goal at the expense of another. An appropriate financial strategy starts with an assessment of your current situation and a budget to help prioritize your competing financial objectives. Meeting with a J.P. Morgan Advisor can help you determine how to accommodate multiple goals that span various timeframes.