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Saving for Education: Plans and Products

Saving for Education: Plans and Products

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.

Plan for retirement with guidance from HSBC

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.:

Call 866.586.4722 or call collect 847.876.1574

Mon - Fri (8am - 7:45pm ET)
Sat (9am - 3pm ET)

 

  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
Any adult
May friends and family contribute to the plan?
Yes, in most cases
Yes provided their MAGI does not exceed amounts noted above
No
Maximum contributions
Annually: $14,000-(individual) / $28,000 (joint) -or- lump sum: $70,000 (individual) / $140,000 (joint) in the first of a five year period
Annually: $2,000 per beneficary regardless of how many separate Coverdell ESAs the beneficary may have
$14,000 a year w/o mandatory filing Form 709 & possible payment of gift taxes
Forms of acceptable funding
Cash
Cash
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
Taxed
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

HSBC's The Value of Education report

Learn more about the four practical steps that may help you save for education.

 

Call 866.586.4722 or call collect 847.876.1574
Mon - Fri (8am - 7:45pm ET)
Sat (9am - 3pm ET)

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.

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ARE NOT A BANK DEPOSIT OR OBLIGATION OF THE BANK OR ANY OF ITS AFFILIATES
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MAY LOSE VALUE

 

All decisions regarding the tax implications of your investment(s) should be made in connection with your independent tax advisor.

 

Research backgrounds of brokers, brokerage firms and investment advisors for free by visiting FINRA's BrokerCheck website

 

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), Premier Relationship Advisors (PRA) and Financial Advisors (FA). PWA/PRAs primarily focus on a full suite of Premier products and services while FAs primarily focus on a full suite of 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.

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