College Planning

Hawaii College Savings Plan - College Savings Plans

It has been said that the best investment you can make is in your children. Your years of good parenting can pay dividends for a lifetime. Part of that great effort is to give your children the best shot to succeed in life through a great education. Unfortunately, college costs are rising at higher rates than ever before.

Here are some college investment options explained:


A 529 plan is a tax-managed savings plan designed to encourage saving for future education costs. 529 plans let a saver open an investment account to save for the beneficiary’s future qualified higher education expenses – tuition, mandatory fees as well as room and board. Withdrawals from education savings plan accounts can generally be used at any college or university, including sometimes at non-U.S. colleges and universities.

A saver may typically choose among a range of investment portfolio options, which can include various mutual fund and exchange-traded fund (ETF) portfolios. These portfolios may also include static fund portfolios and age-based portfolios (sometimes called target-date portfolios).

Contributions - Many states offer tax benefits for contributions to a 529 plan. These benefits may include deducting contributions from state income tax or matching grants but may have various restrictions or requirements.

Withdrawals - If 529 account withdrawals are not used for qualified higher education expenses or tuition for elementary or secondary schools, they will be subject to state and federal income taxes and an additional 10% federal tax penalty on earnings.


Today, 529 plans and Coverdell Education Savings Accounts (ESAs) get a lot of the attention for saving for education expenses. Back before they existed, many families used custodial trust accounts structured as either a Uniform Gift to Minors Act (UGMA) account or a Uniform Transfer to Minors Act (UTMA) account. Any parent, grandparent or other adult can transfer assets to an UTMA or UGMA account.

For either account, there is one custodian and one beneficiary, and all contributions are considered an "irrevocable" gift. That means once made, all contributions belong to the beneficiary and cannot be taken back.

There are no annual or lifetime contribution or income limitations for UTMAs or UGMAs. However, the custodian would be subject to the federal gift tax if the total contribution exceeds $14,000 in a year (or $28,000 for married couples filing jointly).

At the same time, there are also no limits on the use of withdrawals. Withdrawals can be used for any purpose, not just qualified education expenses, without penalty.

Some states allow UTMA accounts, while others allow UGMA accounts.

Both accounts are largely the same but differ in the kind of assets you can contribute to them.

UTMA accounts allow for the contribution of virtually any kind of asset, including real estate. UGMA accounts, on the other hand, are limited to gifts of cash, securities (such as stocks, bonds or mutual funds) and insurance policies.

These accounts are not tax deferred. Instead, for beneficiaries that are younger than 19, or younger than 24 and a full-time student, the first $1,050 of unearned income in an UTMA or UGMA account is tax free. The next $1,050 in income is taxed at the child's tax rate (assuming they have no additional income).

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