529 Plan and College Savings

Archive for the ‘College Savings Plans’ Category

Question: What is the difference between a Coverdell college savings acct. and a 529 college savings account?

Answer: The previous poster has it correct. The ESA and 529’s are not the same thing. I’ve attached a comparison chart for you.

Coverdell ESA
$2000 per year can be invested as long as your income is below $110k per year (filing single) or $220k per year (filing jointly)

You can use them for elementary and secondary schools.

Can be transferred to 529 but may be liable to pay penalties and fees.

It’s a student for the student so it may apply in financial aid calculations. Also, it’s the child’s money when they turn 18 so if they don’t feel like going to school, it would be their choice. They could withdraw the money and go to Europe if they wish.

529 (Prepaid and Savings Plan)
I would not recommend the Prepaid as it would be difficult to guess which institution your child may want to go to later on.

One great benefit of the 529 is it is NOT the child’s asset so does not apply in financial aid calculation (well some might but not as much as Coverdell)

You can only use it for college and NOT elementary and secondary schools.

You can deposit up to $11k per year or front load $55k (which means you can not deposit anything for 5 years). Most plans have limits of $100k-$300k max lifetime contribution.

In some states there is a benefit. Check the site from the previous poster (www.savingforcollege.com) for more details.

You are not stuck to your state. So if your state does not offer a tax benefit, you should shop around. I’m partial to states with Vanguard funds or DFA (Dimensional Fund Advisors) or the lowest Cost.

States to look at are Nebraska, Utah, West Virginia. Good plans and low fees with plenty of options. Each state has specific plans so I’ve attached some you may want to look at.

HTH

ABC News – How to Get The Best Deal When Opening Your First Checking or Savings Account