Comparison of the 529 Savings Plan and Coverdell Educational Savings Plan
Written by James Chan
The 529 Savings Plan and Coverdell Educational Savings Account are both ways for parents and guardians to save for their child’s education. Although their aims are both to provide an incentive for you to save money for your child’s education, there are slight differences between the two that are demonstrated by the chart below.
529 Plan
Coverdell ESA
No age limit for contribution
Contributions only up until the beneficiary reaches age 18
No age limit for withdrawls
Forced withdrawl with penalties when beneficiary reaches age 30
Changes in asset/investment allocation can only be made twice a year
No limit to changes in asset/investment allocation
No Adjusted Gross Income (AGI) limits
AGI limit of up to $95,000 for singles and $190,000 for joint tax filers
No contribution limits
Contribution limit of up to $2,000 per beneficiary per year, regardless of how many ESAs in his or her name
Non-deductable, but deposits up to $12,000 and interest accumulations, as well as education-related withdrawls, are federal tax-free.
Can be used for only education-related expenses, with other withdrawls penalized by a 10% tax plus federal and state taxesapplicable to withdrawl from a normal mutual fund.
Controlled by and considered the asset of custodian/creator of 529, NOT the beneficiary.
Can be freely transferred to another beneficiary without penalty (for ESAs, new beneficiary must be under age 30).
