Coverdell Education Savings Account vs. 529 Plan

What are the main differences between a Coverdell Education Savings Account and a 529 Plan?

The main differences include contribution limits, tax benefits, and eligible expenses. Coverdell accounts allow up to $2,000 per year per beneficiary, while 529 plans have much higher limits. Additionally, Coverdell accounts can be used for K-12 expenses, while 529 plans are primarily for higher education.

Which one is better for saving for my child's college education?

It depends on your specific needs. If you want flexibility in using funds for K-12 education, a Coverdell might be better. However, if you're looking for higher contribution limits and tax advantages, a 529 plan could be more beneficial.

Are there any tax implications I should be aware of?

Yes, contributions to both accounts are not tax-deductible, but earnings grow tax-free. Withdrawals for qualified education expenses are also tax-free. However, non-qualified withdrawals may incur taxes and penalties.

Can I have both accounts for my child?

Yes, you can have both a Coverdell ESA and a 529 plan for the same child. Just be mindful of the contribution limits for each account.