529 Plan Advantages

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529 Plans can be seen as great savings vehicles because they offer tax-free investment growth, and offer many tax benefits. Although they are the most popular, they are not the only option in saving for education.
COVERDELL ESAs
Coverdell ESAs are education savings accounts that are similar to 529 Plans because they offer tax-free investment growth and tax-free withdrawals. They are also similar to Roth IRAs where they allow you to make a non-deductible contribution to an investment trust account. Coverdell ESAs can begin being used from Kindergarten up to college unlike the 529 Plan which is only used for college expenses. These also can only be used for qualified education expenses. Qualified education expenses include: Tuition, fees, books, supplies, equipment, special …show more content…
These are a great savings vehicle for families that would like to start saving throughout their children’s school years. Like 529 Plans, there are advantages and disadvantages to having a Coverdell ESA. One disadvantage of a Coverdell ESA is that any contributions not used by age 30, will be taxed as ordinary income rates and there is also a 10% penalty. If the funds weren’t used by age 30, there is a way that the beneficiary can still avoid fees. The advantage to this is that they can transfer the funds tax-free to another beneficiary as long as they are a qualifying family member. This is the free rollover feature that even 529 Plans offered. The qualifying beneficiary needs to be under the age of 30, and withdraws the funds within 30 days and deposits it into the other account within 60 days. Another disadvantage of Coverdell ESAs is that they have a maximum investment of $2,000 per beneficiary per year. If multiple individuals wanted to contribute to the same account, the total amount would have to be less than $2,000 for penalties to be avoided. This is different from 529 Plans because their maximum contributions are much greater. Another advantage is that
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