Series 65

Retirement Plans - Education Plans

529 Plan
Named for the section that describes them in the Internal Revenue Code, these plans are a type of municipal fund security. Such arrangements enable families to save for education on a tax advantaged basis and to a significantly greater degree than a Coverdell account or UTMA/UGMA account. Most of the time, investors in one state may invest in another state's 529 plan which does not affect the school that one chooses to apply for and matriculate at. Almost every state has a 529 plan. Major plan benefits include, to wit:
  • Contribution amounts are substantial (up to $300,000 per beneficiary) and neither income limitations nor age restrictions exist.
  • Investment grows on a tax-deferred basis.
  • Withdrawals to pay for college costs are tax-free
  • Donor may change beneficiary.
  • Some states may offer tax benefits as well.
  • The donor retains control of the funds. Earnings on non-qualified withdrawals are subject to ordinary income tax and a 10% withdrawal penalty.
  • Simplicity. Enrollment in and contributions to the plan are easy to accomplish. Either the state treasurer's office or an outside investment management company (mutual fund) manage the plan's assets.
  • Tax Reporting: Form 1099 to report (non) taxable earnings is mailed only in the year that the withdrawals are made.
  • Flexibility in allocating assets are rolling over from one plan to another is afforded the investor. Each plan's rules differ, however, and should be consulted.
Coverdell Education Savings Accounts
While other education savings accounts (such as state-sponsored 529 plans) are not covered on the Series 65 exam, the Coverdell ESA is tested. Formerly known as the Education IRA, it had been included with other IRAs in the testing process. Therefore, basic questions about the Coverdell are likely to be found on the exam. Make sure you know the following information:

Annual contribution limit is $2,000; up from the $500 limit for the old Education IRA
  • This limit is per student, so it is not possible for two sets of grandparents to each contribute $2,000 to two different Coverdell ESAs for the same student
  • No tax deduction is available for the contribution, but earnings grow tax deferred
  • Withdrawals of earnings are tax free, if used for qualified education expenses
  • Withdrawals of earnings not used for qualified education expenses are taxed at the student's ordinary income tax rate and will also be subject to a 10% penalty




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