An Overview of College Savings Accounts: Options and Choices RAISE Texas Learning Forum: Taking...

An Overview of College Savings Accounts:Options and Choices

RAISE Texas Learning Forum: Taking College Savings Accounts to Scale November 1, 2011

Carl RistVice President of ProgramsCFED

www.cfed.org202.408.9788

About CFED

CFED (Corporation for Enterprise Development) has worked for over 30 years to expand economic opportunity by helping people save and invest, own homes, succeed as entrepreneurs, contribute to and benefit from the economy.

Identify Good Ideas: CFED’s researchfinds ideas with potential for making theeconomy work for everyone, particularlythose on the margins.

Test Them Out: CFED works on the ground with local communities to test promising approaches and adapt them todiverse cultures and economic conditions.Bring Them to Scale: CFED then takes it to the next level, bringing effective approaches for building wealth and financial security to scale at the local, state and national levels.

We combine the vision of a think tank with real-world experience to:


CFED’s Engagement in CSAs

SEED Initiative

Kindergarten to College (SF)

Partnership for College Completion

Kellogg Children’s Savings Account Initiative


What Are Children’s Savings Accounts?

Children’s Savings Accounts (CSAs) are a promising way to increase assets and educational aspirations for children and their families. In their ideal form, CSAs are:

Established for children as early in life as possible.

Linked to an easy-to-use financial product.

Seeded with an initial deposit and built by contributions from family, friends and children themselves.

Augmented by savings matches and/or other incentives and age‐appropriate financial education.

Used for an asset-building purchase, such as higher education, at age 18.


Key Account Features

Ease of use Safeguarding savings Potential for meaningful earnings Tax advantages/preferences Financial aid implications


Primary Account Options

Statement Savings Account

529 College Savings Account

Traditional and/or Roth IRA

Coverdell Education Savings Account

1

2

3

4


1. Statement Saving Account

ProsEasy to use

ConsAccount

access not restricted

Limited earnings

No tax preferences

More likely to be

counted in asset tests

Other

Counted in

determining a student’s financial need


2. 529 College Savings Account

ProsAccount

restricted to education expenses

Earning potential

Tax advantages

Less likely to be counted in

asset tests

ConsSome

features are not so easy to

use

Potential investment

risk

Other Counted in



3. Traditional and/or Roth IRA

ProsAccount

restricted to education

expenses (and other uses)

Earning potential

Tax advantages

Not counted in determining

financial need

Less likely to be counted in asset

tests

ConsSome features not so easy to

use

Potential investment risk


4. Coverdell Education Savings Account

ProsAccount

restricted to education expenses

Earning potential

Tax advantages

Less likely to be counted in

asset tests

ConsSome

features not so easy to

use

Potential investment

risk

Other Counted in



Final Thoughts

No “perfect” account currently exists Choice of account type depends on weighing various

features against needs of savers and program Having account custodian is costly and complicated,

but can address a number of key features: insure universal access, integrity of use of match funds, and avoidance of asset tests.


Contact

Carl RistVice President of [email protected]

To learn more about CFED’s other children’s savings initiatives, please visit our Asset Building for Children webpage: www.cfed.org/programs/abc

mailto:[email protected]

http://cfed.org/programs/abc/

An Overview of College Savings Accounts: Options and Choices RAISE Texas Learning Forum: Taking...

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