College Savings Accounts PDF Print E-mail

Other than purchasing a home and maybe saving for retirement, the biggest financial challenge many families face if saving for college tuition. How should you save for college? How much should you save? College tuition costs lately have increased at a fairly steep rate, how much will it cost when 6 year-old Sally turns 18? What if you save enough money and then your child decides she's not going to college afterall? Then what? Are you better putting the money in traditional savings accounts, or in riskier places such as stocks and bonds? What about tax breaks?

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In this series at Home Equity News, we are going to look into the pros and cons of College Savings Accounts, from Coverdell Education Savings Accounts to 529 College Savings Plans. Of course traditional savings plans are available, and you should weigh the pros and cons of those accordingly, but these plans do have some benefits specifically geared towards those saving for their children's future education.

529 College Savings Plans

  • No taxes on earnings
  • You have control of the account, not the child
  • Anyone can contribute to the account (Grandma, Aunt, the child, etc)
  • No income limitiation on eligibility
  • Many states have no age limit on when the money can be used
  • If the child doesn't go to college, the account can be rolled over to another family member
  • If the child earns a scholarship, any unused money can be withdrawn without paying a penalty (taxes are still due)

Coverdell Education Savings Accounts (ESAs)

  • No taxes on earnings
  • Maximum contribution is $2,000 per year
  • Anyone can contribute to the Coverdell ESA, but there are income limits
  • Corporations can contribute to the Coverdell ESA
  • Money must be used by the time the child is 30, or there will be a penalty
  • If the child doesn't go to college, the account can be rolled over to another family member


Stay tuned for the next article in this series where we will explore 529 Savings Plans in greater detail.

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