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Today’s Friday Financial Quickie:

529 Plans vs. Coverdell ESA

The second in a series of quick hitter Friday personal finance posts.

If you’re expecting, expecting to be expecting or already have kids, college savings has likely been on your mind. 529 plans and Coverdell ESAs (Education Savings Accounts) are two solid options to help set your little one up for success.

While both options are tax advantaged (no tax on qualified withdrawals), there are some major differences you should be aware of.

Here are the basics:

529 Plan – College Savings Account

  • Tax advantaged
  • No income restrictions
  • Contribution limit: depends, but much higher than Coverdell
  • Use for tuition, fees, room and board
  • (New for 2018) Use for K-12 schooling (up to $10k/yr)
  • Use for college, grad school
  • Age Limit: None
  • Transferable
  • Non-qualifying expense penalty: 10%
  • Change investment allocation 2 time/yr

Coverdell ESA

  • Tax advantaged
  • Income restrictions ($110,000 or $220,000 if filing jointly)
  • Contribution limit: $2k/yr
  • Use for tuition, fees, room and board
  • Use for K-12 schooling
  • Age Limit: 30
  • Transferable
  • Non-qualifying expense penalty: 10%
  • Unlimited investment allocation changes
 

More info on 529 Plans here.

More info on Coverdell ESA here.

As always, consult with a financial planner and do your own research to determine which option works best for your situation.

Have a great weekend!

TWH

Your Kids Will Thank You Later | 529 Plans vs. Coverdell ESA
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