Common Questions about 529s and Saving for College
Jan. 22, 2020 Article

Common Questions About 529s and Saving for College


Q: What is the difference between a 529 plan and UTMA/UGMA?

A: If saving for college is the goal, a 529 provides the tax-free growth and withdrawals assuming the funds are used for qualified education expenses. By comparison, there's no special tax benefit for spending money from a UTMA account on education. Regardless of how the UTMA beneficiary chooses to spend the funds within the account, they will be subject to income taxes. 

The only big difference is control. With a UTMA, the money is considered the child’s asset, but with the 529, the money is considered a parental asset. Upon the minor turning age 21, assets in an UTMA are irrevocably transferred from the donor to the minor. A 529 plan allows the parents (assuming they are designated as owners) to transfer accounts to other, related beneficiaries (such as siblings) if there are additional funds available that are no longer needed by the child for college.

Another consideration is the investment options. 529 plans are generally offered at the individual state level and each state’s plan limits the investment choices, typically to a few "model portfolios," such as aggressive growth, moderate growth, moderate, moderately conservative and conservative. Although these include both stock market and fixed income investments they are still limited to the number of pre-set choices. UTMAs, on the other hand, are completely open to investments of all different kinds, similar to a typical brokerage account or IRA.

Q: What is the maximum I can contribute to a 529 in a single tax year without incurring a gift tax?

A: In 2020, you can contribute up to $15,000 and qualify for the annual federal gift tax exclusion. If you are so inclined, you can "front-load" the gifting contribution up to $75,000 ($150,000 for joint gifts) to a 529 account in a single year, as long as you make a special election to spread the lump-sum gift over five years while giving no other gifts to that beneficiary in that same time period.

Q: What happens to the 529 if my child gets a scholarship?

A: The 10 percent penalty on account earnings for non-qualified distributions from a 529 does not apply if the withdrawal is due to the beneficiary receiving a scholarship, death or disability, or if the beneficiary decides to attend a U.S. Military Academy. There’s also the option of renaming the beneficiary to other children or grandchildren. 

Q: How much should I save?

A: The cost of college appears to be ever increasing. The 2019-2020 average tuition and fees for one year of college, according to U.S. News, is $27,120 for out-of-state residents attending a public university, and up to $41,426 for private universities. Add on room and board and the average cost increases by over $12,000.

Let your income dictate savings over time. The key is to start early and save every month, and make smart investment decisions within the account. And remember, friends and grandparents can contribute as well. Take advantage of this on special occasions when asked for gift ideas for your little one.


The views expressed are for commentary purposes only and do not take into account any individual personal, financial, or tax considerations. It is not intended to be personal legal or investment advice or a solicitation to buy or sell any security or engage in a particular investment strategy. Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about specific 529 plans is available in each issuer’s official statement, which should be read carefully before investing. Consult a financial, tax or legal professional for specific information related to your own situation.

Mariner Wealth Advisors (“MWA”), is an SEC registered investment adviser with its principal place of business in the State of Kansas. Registration of an investment adviser does not imply a certain level of skill or training. MWA is in compliance with the current notice filing requirements imposed upon registered investment advisers by those states in which MWA maintains clients. MWA may only transact business in those states in which it is notice filed or qualifies for an exemption or exclusion from notice filing requirements. Any subsequent, direct communication by MWA with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For additional information about MWA, including fees and services, please contact MWA or refer to the Investment Adviser Public Disclosure website. Please read the disclosure statement carefully before you invest or send money.