Smart planning and saving for education expenses
Saving to fund your children or grandchildren's education can be challenging, yet very rewarding. Designing an education savings plan to accumulate the right amount of assets at the right time is critical. Following the plan in a disciplined way, while adjusting it periodically to account for the rising cost of a college education, is also important.
529 College Savings Plans
With a 529 plan, all contributions are made post-tax for federal income tax purposes. Some states also offer tax-deductible contributions for residents1. The benefit to you is that your contribution will grow on a tax-deferred basis, and your distribution to pay for college can also be made tax-free.
Investors should be mindful that 529 College Savings Plans are municipal securities and may be subject to market volatility and fluctuation.
Another great benefit is that you, as the account owner, will have control over the funds. Many plans may even allow you to reclaim the funds for yourself if your needs change.
Evaluating education savings vehicles
Parents and grandparents can choose among a handful of investment programs, some of which offer tax advantages while saving for education expenses. In addition to 529 College Savings Plans, other plans are available and have been detailed in the comparison chart below. Speak with a Financial Professional2 from HSBC Securities (USA) Inc.:
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|529 College Savings Plans
||Coverdell Education Savings Accounts (ESAs)
||Custodial Accounts (UGMA/UTMA)
|What's the core plan structure?
||Tax-advantaged investment account selected by owner with state-provided choices available
||Tax-advantaged investment account in which parents can choose to invest in mutual funds³, stocks⁵, bonds⁴ and more
||Irrevocable gift to a minor, managed by an adult custodian
|What can the funds be used for?
||Qualifying college expenses
||Qualifying elementary, secondary, and college expenses
||Any purpose benefitting the minor
|Who may open an account?
||Generally any adult, though details may vary by state
||Anyone whose modified adjusted gross income (MAGI) is less than $110,000 for single filers and $220,000 for married/joint filers
Beneficiary must be under age 18 or is an individual with special needs
|May friends and family contribute to the plan?
||Yes, in most cases
||Yes provided their MAGI does not exceed amounts noted above
||Annually: $14,000-(individual) / $28,000 (joint) -or- lump sum: $70,000 (individual) / $140,000 (joint) in the first of a five year period
||$2,000 for all beneficiaries, regardless of how many separate Coverdell ESAs the beneficiary may have
||$14,000 a year w/o mandatory filing Form 709 & possible payment of gift taxes
|Forms of acceptable funding
||Cash, securities, real estate, art, patents, royalties, and more
|Tax implications - Contributions||Federal: not deductible
State: varies by state
|Federal: not deductible
State: not deductible
|Federal: not deductible
State: not deductible
|Tax implications-Earnings||Tax-free when used for qualifying expenses
||Tax-free when used for qualifying expenses
|Expiration age and transfer flexibility
||Funds may be disbursed for qualifying expenses for a beneficiary of any age. Transfers to other family members are allowed
||Funds must be transferred to another eligible family member or disbursed for qualifying expenses before the beneficiary turns 30, unless the beneficiary is an individual with special needs, in order to avoid penalties
||Custodial supervision ends when minor reaches age of majority which varies by state. No transfers – a gift is irrevocable
Before you invest in a Section 529 plan, request the plan's official statement from your HSBC Securities (USA) Inc. financial professional and read it carefully. The official statement contains more complete information, including investment objectives, charges, expenses and risks of investing in the 529 plan, which you should consider carefully before investing. You should also consider whether your home state or your beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds and protection against creditors that are only available for investments in such state's 529 plan. Section 529 plans are not guaranteed by any state or federal agency. Broker-sold plans often contain sales loads and higher fees and expenses than direct-sold plans. For tax advice, consult your tax professional.
Investment and certain insurance products, including annuities, are offered by HSBC Securities (USA) Inc. (HSI), member NYSE/FINRA/SIPC. In California, HSI conducts insurance business as HSBC Securities Insurance Services. License #: OE67746. HSI is an affiliate of HSBC Bank USA, N.A. Whole life, universal life, term life, and other types of insurance are provided by unaffiliated third parties and offered through HSBC Insurance Agency (USA) Inc., a wholly owned subsidiary of HSBC Bank USA, National Association. Products and services may vary by state and are not available in all states. California license #: OD36843.
Investments, Annuity and Insurance Products:
|ARE NOT A BANK DEPOSIT OR OBLIGATION OF THE BANK OR ANY OF ITS AFFILIATES
||ARE NOT FDIC INSURED
||ARE NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
||ARE NOT GUARANTEED BY THE BANK OR ANY OF ITS AFFILIATES
||MAY LOSE VALUE
All decisions regarding the tax implications of your investment(s) should be made in connection with your independent tax advisor.
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United States persons (including U.S. citizens and residents) are subject to U.S. taxation on their worldwide income and may be subject to tax and other filing obligations with respect to their U.S. and non-U.S. accounts - including, for example, Form TD F 90-22.1 (Report of Foreign Bank and Financial Accounts ("FBAR")). U.S. persons should consult a tax adviser for more information.
1 Tax treatment of 529 Plans varies from state to state and can be a major factor in deciding which plan to select. Broker-sold plans often contain sales loads and higher fees and expenses than direct-sold plans. If your state offers a 529 plan you may want to consider what, if any, potential state income tax or other benefits it offers, before investing. State tax or other benefits should be one of many factors to be considered prior to making an investment decision. The prospectus, which contains this and other information, can be obtained by calling your HSBC Securities (USA) Inc. PWA/PRA/FA. Read it carefully before you invest. For tax advice, consult your tax professional.
2 Financial professional refers to Premier Wealth Advisors (PWA), and Premier Relationship Advisors (PRA). PWA/PRAs focus on a full suite of Premier and Advance products and services. Both offer bank products through HSBC Bank USA, N.A., investments and certain insurance products, including annuities, through HSBC Securities (USA) Inc. and traditional insurance products through HSBC Insurance Agency (USA) Inc.
3 Mutual funds, money market funds, and Exchange Traded Funds are sold by prospectus. Please consider the investment objectives, risks, charges and expenses carefully before investing. The prospectus, which contains this and other information, can be obtained by calling your HSBC Securities (USA) Inc. PWA/PRA or call 866.586.4722. Read it carefully before you invest.
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.
4 Equity securities include common stocks, preferred stocks, convertible securities and mutual funds that invest in these securities. Equity markets can be volatile. Stock prices rise and fall based on changes in an individual company's financial condition and overall market conditions. Stock prices can decline significantly in response to adverse market conditions, company-specific events, and other domestic and international political and economic developments.
5 Bond Funds - Investors should be aware that the fund's yield and the value of its portfolio fluctuate and can be affected by changes in interest rates, general market conditions and other political, social and economic developments.