College Cost Chart

AIE — Adventures In Education

Parents

Coverdell Accounts

Learn how to invest in your child's education.

Coverdell Education Savings Accounts (ESAs)

Formerly known as Education IRAs, Coverdell ESAs are a type of investment account that allows you to save for a child's education. Like 529s, Coverdell ESAs offer tax-deferred growth and the ability to withdraw money tax-free as long as it is used for qualified educational expenses.

A Coverdell can be set up with a bank, mutual fund company, or stockbroker for children under 18 years of age or persons who qualify as a special needs beneficiary. A maximum of $2,000 can be deposited into the account each year.

More than one person can contribute to the account, but the total contribution still cannot exceed $2,000. Unlike 529s, contributions to a Coverdell aren't tax deductible. But the annual percentage-of-assets charges for Coverdell accounts are typically lower than for 529 plans.

Advantages

Coverdells are flexible accounts. In addition to using a Coverdell to pay for college expenses, you can also apply it to the cost of public and private elementary and secondary schools.
Anyone can contribute to a Coverdell - you don't need to be a parent, or even related to the beneficiary at all.
The invested money grows tax-free, and you don't have to pay tax as long as you use withdrawals from the account to fund qualified educational expenses.
Coverdells are treated as parental assets in college financial-aid formulas and will not affect the amount of financial aid you are awarded.

Disadvantages

No more than a total of $2,000 can be deposited annually into a Coverdell.
If the money in a Coverdell is not used for education expenses by the time the beneficiary is 30 years of age, unless he or she is a special needs beneficiary, the proceeds are paid out to him or her and are subject to taxes and a 10% penalty on the earnings.
Top-tier earners (married couples that make more than $190,000 a year or a single person that earns more than $95,000 per year) can't contribute the full amount to a Coverdell. However, there are loopholes to this restriction. You can give your child $2,000 and he or she can contribute to the account, or the child's grandparents can contribute if their annual income is below the threshold.
Coverdell contributions aren't tax deductible.

More Information

For more information on Coverdell accounts, contact the Texas Financial Aid Information Center (TFAIC) at (888) 311-8881. Or visit the following Web sites:

529 Plans

Top ^

College Cost Chart

What do you think?