These accounts offer federal tax-free earnings and withdrawals on qualified expenses such as tuition, books, computers, and room & board. While 529 Plans are used exclusively for college, Coverdell Education Savings accounts (ESAs) can be used for elementary and secondary schooling in addition to college. Additionally, there are no minimum contributions, and account owners can contribute up to $2000 per child per year.
| Title | 529 Plans | Coverdell ESAs |
|---|---|---|
| Is there a contribution limit? | Yes (Varies by state) | Yes ($2,000 per year) |
| What’s included in “qualified expenses?” | Tuition, fees, books, school equipment, school supplies, room & board for college only | Tuition, fees, books, school equipment, school supplies, room & board for all levels of education |
| Are qualified expenses taxed? | No (Federal tax-free, State taxes may apply) | No (Federal tax-free, State taxes may apply) |
| Can you change the beneficiary? | Yes | Yes |
| Are there any income limit restrictions? | No | Yes (Ineligible if your Adjusted Gross Income is $95,000-110,000 for single filer; and $190,000-220,000 for joint filers) |
| How is the account treated for estate tax purposes? | The value of the account is removed from the account owner’s taxable estate | Contributions are treated as completed gifts from the contributor to the beneficiary |
Start saving and investing for your child’s college education today.