Virgin Consulting
  • Blog
  • Pricing
  • Resources
    • Resources
    • Xero
    • Accounting For Screen Printers & Sign Makers
  • Small Business Excel Templates
  • About
    • About
    • Testimonials
    • Contact Us

Blog

You are here: Home / College Savings Options Coverdell ESA vs 529 Plan

College Savings Options Coverdell ESA vs 529 Plan

I was thinking about family financial planning and wanted to make sure that you were aware of a couple really good college education savings options.  This has been a topic in my household as our oldest child has started preschool so now the private school and college planning has unfortunately become a reality.  I had to pay some homage to Ohio State with the picture on this post since it relates to college savings.

The old adage says it is never too late or too early to plan for a loved ones’ education.  Also, keep in mind that compound interest is a magical thing.  The problem is that there are several ways to accomplish this so we will discuss the differences of college savings options Coverdell ESA vs. 529 Plan.

College Savings Options Coverdell ESA vs 529 Plan

There are two main options for college savings.  The Coverdell Educational Savings Account (ESA) and the 529 Plan.  There are some common links in that both are federally non-deductible, grow tax free, beneficiaries are changeable in case one kid is smarter and gets a scholarship, and are parent owned so you control the account. Below are some key points that compare college savings options Coverdell ESA vs 529 Plan.

Coverdell ESA

  • Non-deductible contributions.
  • Withdrawn earnings are excluded from income to extent of qualified higher education expenses and qualified K-12 expenses also excluded $2,000 per beneficiary per year combined from all sources.
  • Can include Tuition, fees, books, supplies, equipment, special needs; room and board for minimum half-time students; additional categories of K-12 expenses (private school tuition)
  • Ability to contribute phases out for incomes between $190,000 and $220,000 (joint filers) or $95,000 and $110,000 (single)
  • Freedom to invest in whatever stock/mutual fund you would like and most brokerages can establish an account

529 Plan

  • Non-deductible contributions
  • Withdrawn earnings are excluded from income to extent of qualified higher education expenses.
  • Can include Tuition, fees, books, supplies, equipment, special needs; room and board for minimum half-time students.
  • No income restrictions.
  • Choose from two types: Savings Plan (functions like 401(k) or IRA) and Prepaid Tuition Plan.
  • Some states offer a deduction on their state’s income tax return.  Here are some samples.
    • Ohio – http://www.collegeadvantage.com/ – $2,000 deduction per year
    • Kentucky – https://www.kysaves.com/
    • West Virginia – http://www.smart529.com/

On the other hand, what if you do these plans and your child gets a full scholarship.  Then you can either transfer the account to another beneficiary or withdraw it to buy a beach house.  In that case, the earnings will be taxed at your tax rate and also will be subject to a 10% penalty.  However, at that point the kid has a full-ride and you have a beach house so what is a 10% penalty!!

What college savings option Coverdell ESA or 529 Plan, do you prefer?

Related Articles:

  • Why Xero?
  • How Business Structure Affects Taxes
  • Three Awesome Reasons to Choose the S Corporation
  • Inherited Annuity Tax Implications
  • Home Health Caregiver Hiring and Taxes
January 16, 2015 Tyler Virgin Tax 529 Plan, College Savings Plans, Coverdell ESA, Educational Savings Account Leave a reply

Post navigation

← Feed Your Brain – Create Mind Bullets With Seven Steps Starting a Small Business – 9 Step Checklist →

Recent Posts

  • Secrets of Xero Control Accounts – Partial Payments & Refunds
  • Why Xero?
  • How Business Structure Affects Taxes
  • Three Awesome Reasons to Choose the S Corporation
  • Inherited Annuity Tax Implications

Please follow & like us :)

Twitter
Follow Me
Tweet
LinkedIn
Share
Follow by Email

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Categories

  • Accounting
  • Cash Flow
  • Debt
  • Operational Efficiency
  • Tax
Subscribe to my mailing list

Connect With Me

Twitter
Follow Me
Tweet
LinkedIn
Share
Follow by Email
Virgin Consulting @ 2023. All Rights Reserved. Proudly Powered By WordPress !
  • Blog
  • Pricing
  • Resources
  • Small Business Excel Templates
  • About
MENU
  • Blog
  • Pricing
  • Resources
    • Resources
    • Xero
    • Accounting For Screen Printers & Sign Makers
  • Small Business Excel Templates
  • About
    • About
    • Testimonials
    • Contact Us