Types of College Saving Accounts

College Saving Plans:

1.) 529 Plans 

The 529 college saving plan allows the contributor, who is the account holder, to establish an account for a student (the beneficiary) to pay the beneficiary’s qualified college expenses. The qualified expenses cover the following:

a.) Tuition 

b.) Room and board

c.) Books, computers, and other related items 

d.) Required college fees 

Contribution limits for 529 plans: 

Contribution limits can be up to $250,000 or more. Contributions can be made with after-tax money, and withdrawals are not subject to federal tax, and in most cases state tax, as long as the withdrawals are made for college expenses. 

2.) Coverdell Education Savings Accounts (Coverdell ESAs)

Coverdell ESAs is another type of college savings account. Contributions are made with after-tax money for the student, who is the beneficiary. Contributions must be made in cash on or before the date on which the beneficiary attains 18 years. The contribution limit for a Coverdell ESA is a maximum of $2,000 per beneficiary per year. However, in order to make the maximum contribution ($2,000) the adjustable gross income (AGI) for single tax filers is $95,000 or below, and for joint tax filers the AGI is $190,000 or below. 

Classification of Investment and Financial Products

Another way to classify financial products is to group similar products into specific classes. These classes are generally defined as the following: 

1. Cash and cash equivalents - savings and checking accounts, money market accounts, bank and broker CD’s, and T-bills

2. Equities - common stocks, preferred stocks, and mutual funds

3. Fixed-income investments - corporate bonds, municipal bonds, Treasury bonds, bond funds, and mortgage-backed securities 

4. Hard assets - real estate, precious metals, and collectibles

Construction of an Investment Portfolio

Constructing an investment portfolio should be based on the investor’s risk tolerance and suitability. There are different asset classes that make up an investment portfolio. Asset classes fall under two major categories: Equity Securities and Debt Securities/Fixed-income. 

Asset Class - Equity Securities 

1. Growth Stocks - Growth stocks have a high expectation of earnings growth. 

2. Income Stocks - Income stocks have a high dividend payout. 

3. Value Stocks - Value stocks are usually stocks that are undervalued by the market. 

4. Defensive Stocks - Defensive stocks remain stable and have consistent earnings regardless of the current economic condition. 

5. Cyclical Stocks - Cyclical stocks tend to move in relation to the changes in the economic cycle. Ex. manufacturers and construction 

6. Sector Stocks - Sector stocks are industry specific. Ex. technology stocks, airline companies, etc. 

7. Speculative Stocks- Speculative stocks are high risk and have wide fluctuations. 

8. Blue-Chip Stocks - Blue-Chip stocks are leaders in their industry. 

Asset Class - Debt Securities/Fixed-income

1. U.S. Government Debt - There are three major debt instruments that the U.S. government issues: 

   a. Treasury bills

   b. Treasury notes

   c. Treasury bonds

     2.  Corporate Bonds - Corporate bonds provide investors with a fixed-income stream. 

3.  Municipal Bonds - Municipal bonds are suitable for investors who are in a high tax bracket.