While almost anyone can invest in a 529 plan, regardless of income, the ability to take advantage of a Coverdell ESA phases out for parents with modified adjusted gross incomes between $190,000 and $220,000 ($95,000-$110,000 for single filers). However, in addition to college expenses, certain K-12 purchases are also considered qualified when using a Coverdell ESA.

A Coverdell Education Savings Account (ESA) is a special account designed to help pay for your child’s education. With a 529 plan, families are limited to investing in the investment portfolios offered by each plan, which include age-based options that automatically shift allocations over time as the beneficiary gets closer to college, or static options that consist of individual or multi-fund portfolios. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation. In 2002, however, the re-named Coverdell education savings account became a very attractive college savings vehicle for many people, including families that wish to save for elementary and secondary school expenses. All Rights Reserved. All Rights Reserved, 529 Savings Calculator for Private K-12 Tuition, Revised Pay As You Earn Repayment Calculator. Subscribe to the show for free on iTunes and get her updates at SmartMovesToGrowRich.com, Twitter, and Facebook. Eligible schools include all public, private, or religious schools that provide either primary or secondary education as determined under their applicable state laws. These accounts work very much like a 529 plan, offering tax-free investment growth and tax-free withdrawals when the funds are spent on qualified education expenses. Maybe the student graduates with all her education bills paid, but there’s still $1,000 left in the account. You may opt-out by. Learn more about Coverdell ESAs using the links below. The same holds true for mutual fund companies. We have an advertising relationship with the companies included on this page. See IRS Publication 970 for complete details on Coverdell accounts and a list of qualified family members for making a beneficiary change.

Coverdell ESA vs. 529 Plan: Which to Choose? The Economic Growth and Tax Relief Reconciliation Act of 2001 enhanced the benefits of using the Coverdell ESA, including: • Increasing the annual contribution limits from $500 to $2,000 per beneficiary, • Offering tax-free withdrawals for K-12 expenses, • Allowing families who use Coverdell ESAs to claim other education tax benefits, as long as there is no “double-dipping”.

We have assembled this list of low-cost Coverdell Education Savings Accounts (ESA). What’s more, you’re only able to contribute $2,000 per year for each beneficiary, and only until they turn 18. To avoid this, you can change the beneficiary on the account to another qualifying family member or roll the balance in to a 529 plan. All of our content is based on objective analysis, and the opinions are our own.

If you use a mail filtering tool make sure you allow email from support@savingforcollege.com prior to submitting the request. But what if you want to send a younger child to private school? With a 529 plan, the account owner, not the beneficiary, retains control of the assets over the life of the account. Academic tutoring related to enrollment: The math or science tutor (or a dance instructor if your child is a dancer attending a school for the performing arts) is covered here. You may find that the brokerage you use for your retirement savings or other accounts doesn’t offer Coverdell ESAs. Education expenses that qualify for Coverdell College Savings Plans are those expenses that you’re required to pay if your student enrolls at an eligible school. When you open a Coverdell, the account must be for a designated beneficiary who’s under the age of 18. We were unable to locate that email address in our records. Coverdell Education Savings Accounts (ESAs) are tax-advantaged vehicles designed to help families save for elementary, secondary and college expenses. Also, Coverdell ESAs have much lower maximum contribution limits per child, and they are only available to families below a specified income level. A thorough explanation of one of the least-understood investment vehicles around, the Coverdell Education Savings Account. Consider this scenario: after a lucky child is born, her parents decide to set up a Coverdell for her and her grandparents also decide to set one up. If you use a mail filtering tool make sure you allow email from support@savingforcollege.com prior to submitting the request. Reset email successfully sent.Please check your inbox. In 2002, the Education IRA was renamed the Coverdell Education Savings Account. You can contribute to the account as long as the beneficiary is under 18 years old. This benefit applies not only to qualified higher education expenses, but also to qualified elementary and secondary education expenses.

Once entered, we will send a reset link to the email address you specified. Coverdells can be opened with traditional or online brokerages as well as with many banks and mutual fund companies. You have been successfully subscribed to our email list. Sorry, that username or password isn't right.

Funds in the account must be spent by the time the student turns 30, and at that time, any funds not withdrawn within 30 days may be subject to taxes and penalty. American Funds offers Coverdell ESAs, but Vanguard no longer accepts applications for new Coverdell ESAs (but they will continue to service existing accounts). Companies and trusts are even allowed to make contributions to Coverdells, no matter how much income they earn. Coverdell education savings accounts have some interesting advantages over 529 plans, such as the ability to use Coverdell ESA funds to pay for private elementary and high school education… These benefits were set to expire the end of 2012, which many feared would cause the Coverdell ESA to become obsolete. What if you can’t use all the Coverdell funds for the beneficiary’s qualified expenses? Yet despite their benefits, Coverdell ESAs will likely continue to live in the shadows of the 529 plan. Knowing this helps us better customize your experience, Knowing this helps us better customize your experience and offer better recommendations, Already have a Savingforcollege.com account?Log In, I want to learn more about college savings, I want to connect and monitor my 529 plan, Track your child’s 529 plan growth and performance, Notifications to help you better manage your child’s 529 plan, Tips on how to accelerate the growth of your child’s 529 plan. Three-year rankings are based on a plan's average annual investment returns over the last three years. There’s an annual contribution limit of $2,000 per student. If the parents were to contribute $500 and the grandparents $1500, together they have maxed out the allowable yearly limit for the child.

The higher education rules fall in line with those for Section 529 plans. But the rules differ regarding K-12 expenses. There are more qualified expenses for younger students than for those getting post-secondary education. They operate very similar to 529 savings … Enter your email address to begin the reset password process. So if you want to contribute to a Coverdell for the 2011 tax year, you have until April 15 of 2012 to do it. Qualified expenses for elementary and secondary education: In addition to tuition and mandatory fees, other elementary and secondary education expenses may be eligible for payment using Coverdell distributions. Coverdell funds can be used to pay for the student’s tuition and all associated fees, books, equipment, and supplies for their attendance at an eligible institution. Tuition and mandatory fees at eligible educational institutions: For a school to qualify, it needs to be able to participate (but doesn’t have to) in federal financial aid programs administered by the Department of Education. If the left over money is withdrawn, this will generally be considered a taxable distribution, also subject to an additional 10% tax penalty. Here’s a tip if you earn too much to contribute to a Coverdell: simply gift the money to the student, and help them open up the account for themselves. qualified elementary and secondary expenses.

I write for Savingforcollege.com, the leading independent source of information about ways to save and pay for education, and contributed to the 11th and 12th editions of the book "Savingforcollege.com's Complete Guide to 529 Plans." © 2020 Forbes Media LLC. register now. The latest articles and tips to help parents stay on track with saving and paying for college, delivered to your inbox every week. Another advantage of the Coverdell ESA over a 529 plan is the ability to self-direct investments. Once entered, we will send a key to the e-mail address you specified. Qualified Education Expenses in Coverdell College Savings Plans, Saving for College via Section 529 Plans and Coverdell Accounts. I write about personal finance with the goal of helping families make smart decisions. Eligible schools include all public, private, or religious schools that provide either primary or secondary education as determined under their applicable state laws.

For some families, yes - since the Coverdell ESA offers some benefits that you can’t get from a 529 plan. Compare the features of a Coverdell education savings account with other college savings options side by side: You can modify your comparison by selecting which options to look at, and what features you'd like to compare. For security, we track login attempts. We also prefer, but do not require as a condition of being on this list, that the ESA have low minimum contribution requirements. If you know of an ESA that belongs on this list, please send us an email with the name of the ESA sponsor and a hyperlink to the application.