Harold and Mary Anne Miller are a married couple in their early 40s with three children, ages 7, 10, and 12. Harold earns $350,000 per year as General Counsel of a mid-sized IT firm and Mary Anne is a homemaker. They have major assets of $1,500,000 cash and $1,000,000 in stock options. They have done no estate planning. Harold has life insurance of two times his salary from his employer. Harold plans on working full-time until age 62. Harold has the potential to receive more options and restricted stock based on his company’s performance, but has requested that this not be included in his assets for now given the uncertainty. College planning is of great concern to the Millers, currently they have no plan in place. They estimate that they will need $150,000 for each child in current dollars to fund their education. The Millers have constructed a budget and have determined that their household expenses are currently $12,000 per month, after tax. Assume that the Millers are in the 35% federal tax bracket an 6% state tax bracket.

The Millers would like to set aside money to cover all of the required funding for their children’s education. They are not confident the children will be able to handle money by age 21. Which of the following is most appropriate for the Millers?

  1.   Uniform Transfers to Minors Act (UTMA) account in the name of each child
  2.   Coverdell Education Savings Account
  3.   Section 529 Qualified College Savings plan
  4.   Section 529 Prepaid Tuition plan