Assisting your children or grandchildren with their education is high on your list of priorities. As education costs continue to rise, early planning is critical. You also need to consider how to protect their educational opportunities should something happen to you. With the right strategies, you can manage the costs.

To get started, consider the following options:




Taxpayers may deposit up to $2,000 per year into a Coverdell Education Savings Account (ESA) for a child under age 18 or special needs beneficiary. Parents, grandparents, other family members, friends, and children themselves may contribute to the Coverdell ESA, provided that the total contributions during the taxable year do not exceed the $2,000 limit. Amounts deposited into the account grow tax-free until distributed, and the child will not owe tax on any withdrawal from the account if the child’s qualified higher education expenses at an eligible education institution for the year equal or exceed the amount of withdrawal. Eligible expenses also include elementary and secondary school (as determined by state law, K-12) costs and the cost of computer equipment, Internet services, and software. If the child does not need the money for post-secondary education, the account balance can be rolled over to the Coverdell ESA of certain family members who can use it for their education expenses, however the account must be fully withdrawn by the time the beneficiary reaches the age of 30, or taxes and penalties will apply. Amounts withdrawn from a Coverdell ESA that exceed the child’s qualified education expenses in a taxable year are generally subject to income tax and to an additional tax of 10%.

If you are coordinating 529 Plan and ESA withdrawals and HOPE or Lifetime Learning credits, it is suggested you discuss your tax situation with a qualified tax advisor.


A donor may make an outright gift to a custodial account for thebenefit of a minor child. The parent or custodian may retainresponsibility of management of the assets in the account subject tothe terms of the act. The standard rules regarding gift tax exclusionsapply, including the annual $14,000 limit for tax year 2015. The donor may choose tocontribute from a number of assets, such as stocks, bonds, mutual fundsor real estate. The funds may be used for any purpose, includingeducation. One issue to consider with the UGMA and UTMA is that uponreaching a certain age, specified by each state’s laws, the child hasfull discretionary control over the accumulated assets and may chooseto use such assets for purposes other than college funding.


One way to supplement a college funding strategy is with Cash Value Life Insurance that can be used for a number of purposes. Parents, grandparents, or other family members may gift premiums (to the child or owner of the policy, for example), and the cash value build-up inside the policy is tax deferred during the accumulation period. When the time for college arrives, cash may be withdrawn from the policy (generally on a tax-free basis up to the amount of the premiums paid), or the cash values can be borrowed from the policy. In most cases, loans or withdrawals will reduce the policy’s cash value and death benefit. If the policy is surrendered or lapses, taxes may be due.


Interest earned by U.S.Series EE Savings Bonds is free from state income taxes. All or some of the interest may also be free from federal income taxes if the bonds are used for qualified higher education expenses. The exclusion from federal tax is subject to an income phaseout. The bonds must be registered in the parent’s name and the qualified higher education expenses must be incurred during the same tax year in which the bonds are redeemed.

*Not offered through MassMutual or MML Investors Services, LLC