Coverdell Education Savings Account vs 529 Plan
$2,000 a year per beneficiary for education, subject to income limits. A tax-advantaged account for education expenses.
What is the difference between Coverdell Education Savings Account and 529 Plan?
Coverdell: $2,000 a year cap, income limits, age limits. 529: very high contribution limits, no income limits, state-sponsored.
| Coverdell Education Savings Account | 529 Plan | |
|---|---|---|
| In one line | $2,000 a year per beneficiary for education, subject to income limits. | A tax-advantaged account for education expenses. |
| Example | Two grandparents each wanting to put $2,000 into one grandchild's Coverdell cannot - the $2,000 cap is per beneficiary. | $200/month from birth at 6% is roughly $77,000 by age 18, tax-free for tuition. |
| Unit | Retirement Plans, Accounts & Trading | Taxes & Account Types |
| Series 65 | Section 3: Client Strategies | Section 3: Client Strategies |
What is Coverdell Education Savings Account?
Total contributions for any one beneficiary cannot exceed $2,000 a year, contributors must be under income limits, and contributions generally stop at 18. Growth and qualified withdrawals are tax-free and can cover K-12 as well as college costs. Assets must generally be used by age 30 or rolled to another family member.
What is 529 Plan?
Contributions are after-tax (often state-deductible), growth is tax-deferred, and withdrawals for qualified education expenses are tax-free. Non-qualified withdrawals face income tax plus a 10% penalty on earnings. Limited rollovers to a Roth IRA are now permitted under SECURE 2.0.