Education Savings Plans

With costs rising for higher education and private K-12 education, you may want to consider a tax-advantaged strategy by utilizing a 529 Education Savings Plan and/or a Coverdell Education Savings Account (CESA). By establishing an education savings plan now, you may not only benefit from an end-of-year tax break, you’re giving a helping hand toward the skyrocketing cost of higher education.

Morgan Stanley Employee Offers

529 Education Savings Plan: 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).

Learn more about this offer: Read a hypothetical example

For example, consider a hypothetical $1,000 investment in a mutual fund with a 5.5% front-end sales charge. The 5.5% front-end sales charge, or $55 in this case, would reduce the value of the investment to $945. However, with the employee offer, you will not pay a front-end sales charge, therefore your $1,000 will not be reduced.

Over time as additional contributions are made to the 529 plan, the savings may be significant, and the funds that would have otherwise been deducted to pay the front-end sales charge will continue to be invested fully in the account.

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. 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 Morgan Stanley offers a robust platform of 529 education savings plans of the nation’s leading mutual fund companies.

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).

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.

 

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.

1The 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.

 

Prior to investing, investors should consider whether their resident state or the resident state of the beneficiary offers any state tax or other benefits that are only available in that state’s qualified tuition program.

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 2846419 12/19

© 2019 Morgan Stanley Smith Barney LLC. Member SIPC.

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