Education Savings Plans
With the costs of higher education trending higher each year, paying for college and private K-12 education has become a top-tier life expense that requires smart planning. A tax-advantaged strategy like 529 Plan and/or a Coverdell Education Savings Account (CESA) can help significantly.
And we’d like to help even more, which is why we have launched a 529 Plan Employee Match Program in strategic partnership with Gift of College. By establishing a 529 Plan now, you may benefit from the tax-efficient investment approach and a matching contribution, and you are showing the children in your life how much you value their education and future.
Morgan Stanley Employee Offers
While it’s never too late to save, the earlier families start, the greater the potential power of compounding. We are committed to you, your families and your financial wellbeing, and we know that the first step can be the most difficult—that’s why we want to make it a little easier by offering an incentive to start:
529 Plan Employee Match Program: Morgan Stanley will offer a one-time $100 match to any U.S.-based employee who opens a new 529 Plan at Morgan Stanley with a new beneficiary and deposits a minimum of $100 into their account within the first 30 days of opening it.1 The match will be a digital gift card that is automatically emailed to eligible employees during the following quarter after the account is established. For example, if you establish a Morgan Stanley 529 Account in July, you may receive that gift card in October. You can contribute the gift card into your 529 Plan through GiftofCollege.com, an innovative platform that enables friends, family, and employers to contribute to any 529 college savings, student loan or 529 ABLE account.
No Front-End Sales Charge on 529 Education Savings Plans: Employees can invest in Class A units/shares at net asset value (NAV), which means that you will not pay a front-end sales charge (see the Plan’s Program Disclosure Statement for more information).
- The Savings Can be Substantial: For example, consider a hypothetical $1,000 investment in a mutual fund with a 5.5% front-end sales charge. As an employee, you are entitled to NAV pricing and your investment would not be subject to the 5.5% front-end sales charge, or $55 in this case, which would reduce the value of the investment to $945. With the employee offer, you will gain a one-time matching contribution of $100, meaning your potential compounding growth will start at $1,100 rather than $945.
- Over time as you, grandparents or other friends and family make additional contributions to the 529 Plan, the savings may be significant.
Coverdell Education Savings Account (CESA): Employees will not be charged the CESA annual fee (normally $50).
Understanding 529 and Coverdell Education Savings Plans
Morgan Stanley offers an array of education savings plans for elementary and secondary school, state or private college and technical or graduate school expenses, which can help you meet your savings goals.
A 529 Education Savings Plan is a savings plan that allows you to set aside funds for future education expenses, such as college. 529 Plans offer significant tax benefits and an exceptional degree of control and flexibility. Your money grows tax-deferred, and withdrawals used to pay for qualified education expenses are free from federal tax. Some states may even offer state tax deductions or credits among other benefits for investing in your home state’s plan. What’s more, 529 Plans can be used for virtually any public or private institution of higher education in the United States and even many abroad.
Additionally, the Federal Tax Cuts and Jobs Act of 2017 permits Federal Tax Free qualified withdrawals from 529 Plans of up to $10,000 per year per student to pay expenses for tuition in connection with enrollment or attendance at an elementary school or secondary public, private or religious school.1 Under the SECURE Act enacted into law in December 2019, effective January 1, 2019, the definition of qualified education expenses for federal income tax purposes expanded to include (a) up to $10,000 per beneficiary (lifetime limit) used to repay qualified student loans, and (b) certain costs for qualifying apprenticeship programs.2 The state income tax treatment may differ from the federal income tax treatment.
Morgan Stanley offers a robust platform of 529 Education Savings Plans of the nation’s leading mutual fund companies. Learn more about the characteristics of 529 Plans by reading Ten Things You Should Know About 529 Plans.
A Coverdell Education Savings Account (CESA) can be used to save for elementary and secondary school expenses (kindergarten through grade 12) in addition to college costs. A CESA works similarly to a Roth IRA and allows you to make an annual non-deductible contribution to a self-directed investment account. The child’s account will grow free of federal income taxes and withdrawals for qualified education expenses will also be tax-free. Unlike a 529 Plan, the CESA has eligibility requirements based on Annual Gross Income (AGI) for annual contributions.
Compare 529 and Coverdell Education Savings Plans. If you’re saving for your child’s education, you might be considering a 529 Plan and/or a Coverdell Education Savings Account (ESA). Below are some comparisons to help you understand the options. To learn more, see College Savings Plan: Comparing the Options.
|Features||529 Plan||Coverdell ESA|
|Qualified expenses||Qualified plans include tuition, fees, room and board, books and supplies of virtually any accredited post-secondary school. Effective January 1, 2018, the definition of qualified education expenses expanded to include tuition for K-12 schools as a result of the 2017 Tax Cuts and Jobs Act. The new law limits qualified 529 withdrawals for eligible K-12 tuition to $10,000 per beneficiary per year. Effective January 1, 2019, the definition of qualified education expenses expanded to include (a) up to $10,000 (lifetime limit per individual) used to repay qualified education loans, and (b) certain costs for qualifying apprenticeship programs. The state income tax treatment may vary on a state by state basis.||Qualified expenses include tuition, fees, books, supplies, equipment, special needs services; room and board for students enrolled at least half-time as students; additional categories of K-12 expenses. The state income tax treatment may vary on a state by state basis.|
|Maximum investment||Established by the program but many allow contributions of more than $300,000 per beneficiary||$2,000 per beneficiary per year combined from all sources|
|Who can contribute to the account?||Anyone||Generally, any individual (including beneficiary), with modified adjusted gross income (MAGI) for the year that is less than $110,000 ($220,000 joint return). MORE|
|Time and age restrictions||None unless imposed by the program||Contributions must be made before beneficiary reaches age 18. This age limit does not apply to special needs students. The account must be used by age 30 unless the beneficiary is a special needs student.|
|Ability to change beneficiary||Yes, to another member of the beneficiary's family||Yes, to another member of the beneficiary's family|
|Use for nonqualifying expenses||Withdrawn earnings subject to federal income tax and 10% penalty tax. State income taxes may also apply.||Withdrawn earnings subject to federal income tax and 10% penalty tax. State income taxes may also apply.|
Advantages of Working with a Morgan Stanley Financial Advisor
- A Morgan Stanley Financial Advisor will answer your questions, explain your options and help you select the plan that’s right for you or the individual for whom you are opening the account.
- Depending on the plan, you may benefit from the strategic guidance of a Financial Advisor to help you select an asset allocation, or investment option line up, that may best meet your needs.
- For 529 Plans, your Financial Advisor can help project costs for private and public institutions based on a future enrollment date, and tailor a contribution schedule that works for you.
- Browse the 3DR Education Savings Homepage, where you can access information and resources related to 529 Education Plans (browser shortcut: “education/”) and Coverdell Education Savings Accounts.
- See a list of 529 Plans offered through Morgan Stanley, visit their respective websites, and consult with a Morgan Stanley Financial Advisor to help determine which plan may be right for you.
- Some states offer favorable tax treatment and other benefits to their residents only if they invest in their state’s own 529 Plan. Investors should consult with their financial and tax advisor before investing in a 529 Plan or contact their state division for more information.
- College Coach offers Morgan Stanley employees regular free webinars, as well as one-on-one counseling and a virtual learning center at no cost, to help families select, apply to and finance college.
Planning to go back to school yourself?
Check out Morgan Stanley’s tuition reimbursement program.
1529 Plan Employee Match: The Morgan Stanley one-time $100 match is taxable income to you and will be reported on your Morgan Stanley Form W-2. Morgan Stanley will cover the income and payroll tax withholding on the associated income (i.e. provide a “tax gross-up” on the $100 of income).
2Assets can accumulate and be withdrawn federal income tax-free only if they are used to pay for qualified education expenses. Qualified education expenses include tuition, fees, room and board, books and supplies at virtually any accredited post-secondary school. Effective January 1, 2018, the definition of qualified education expenses expanded to include tuition for K-12 schools, as a result of the 2017 Tax Cuts and Jobs Act. The new tax law limits qualified 529 withdrawals for eligible K-12 tuition to $10,000 per beneficiary per year and state tax treatment will vary on a state by state basis. The state tax treatment of K-12 withdrawals is under review by many states. Account owners should consult with a qualified tax advisor prior to making such withdrawals as they may be subject to adverse tax consequences. Earnings on non-qualified distributions will be subject to income tax and a 10% federal income tax penalty. Note, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 signed into law Friday, December 20, 2019, expands the definition of qualified higher education expenses for federal income tax purposes to include certain costs associated with qualifying apprenticeship programs and up to $10,000 (lifetime limit per individual) in amounts paid towards qualified student loans of the 529 Plan designated beneficiary (or such beneficiary’s sibling). Note, however, using 529 Plan distributions to repay qualified student loans may impact the deductible of student loan interest. This new provision applies to 529 Plan distributions made after December 31, 2018. The state tax treatment of 529 Plans (including the state tax treatment of contributions and distributions) may be different from the federal tax treatment and may vary based on the particular 529 Plan in which you participate and your state of residence. If the applicable state tax law does not conform with the federal tax law, 529 Plan distributions used to pay certain expenses, such as principal and interest on qualified student loans and/or qualifying apprenticeship costs, may not be considered qualified expenses for state tax purposes and may result in adverse state tax consequences to the account owner or designated beneficiary.
For Internal Use Only
The 529 Plan Program Disclosure contains more information on investment options, risk factors, fees and expenses, and potential tax consequences. Investors can obtain a 529 Plan Program Disclosure from their Financial Advisor and should read it carefully before investing.
Prior to investing, consider whether whether tax or other state benefits such as financial aid, scholarship funds, and protection from creditors are only available for investments in your home state 529 College Savings Plan.
Investments in a 529 Plan are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so an individual may lose money.
Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors do not provide tax or legal advice. Clients should consult their personal tax advisor for tax related matters and their attorney for legal matters.
CRC 3136046 06/20
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