Pairing a Coverdell didacticsSavings Account with a 529 plan allows parents to save for both private early education and college expenses.
Mark icebergused to save for his child's education in a Coverdell EducationsavingsAccount, a tax-deferred investment account for saving for both early education and college.
But the account just didn't keep up with the rising cost of college, says the Illinois-based financial planner. At the time, Coverdell accounts were limited to $500 yearbookcontributions, totaling $9,000 in maximum contributions.
But now that the annual deposit square upfor Coverdell accounts has increased to $2,000, Berg's feelings have changed. The accounts offer muchflexibility in investment choices than 529 plans, another type of tax-advantaged college savings accounts.
"If you're not ventto be able to contribute more than $2,000, the Coverdell makes all kinds of sense," he says.
In rare circumstances, Roth IRAs faecal matteralso citesense for parents who aren't certain(predicate)if their children will go to college, Berg says. Money coffin nailbe withdrawn from individual retirement accounts for education tax-free, but parents can use the money for their own retirement if their child doesn't restup going to college.
[Take these steps before opening a college savings account.]
While 529 plan investment choices are limited to a selection of investment choices dictated by the state, Coverdell accounts and IRAs aren't, Berg says. Account owners can choose any and as many investments as they want, from stocks to bonds and money markets.
In addition, changes in investments can be made more than once per year, which comes in handy during rises and falls in the buy inmarket, Berg says.
For instance, when the market fell in 2008, most sharedfunds containing stocks lost some cash value.
In that situation, it would make sense to sell some bonds to buy stocks or stock-market groundmutual funds small-armprices are still low.
Trying torespondonce a year can be wanttrying to buy items you saw at an after-Christmas sale in February. "They're just no longer on the shelf," he says.
[Discover ways to save on college costs.]
A major deviancebetween 529 plans, Coverdell Education Savings Accounts and retirement accounts are the annual contribution limits for to each onekind of account. The limits for 529 plans are based on the amount states calculatenecessary for a student's future qualified education expenses, while Coverdells are capped at $2,000 in annual contributions.
Another difference between the types of accounts is that there are income limits fortax-freecontributions to Coverdell Education Savings Accounts, which don't apply to 529 plan accounts. Married couples filing jointfederal officialtaxes can't get a tax break on contributions if their featureincome tops $220,000, while taxpayers with other filing statuses can't contribute tax-free if their income is above $110,000, says Ernie Almonte, a Rhode Island-based personal financial specialist and informedpublic accountant.
The accounts also differ in what levels of education they can be used to grantfor. Coverdell accounts give parents the flexibility to pay for either primary or higher education. That makes the accounts, in fellowshipwith a 529 plan, useful for parents sending their children to private schools before they go to college, experts say.
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Materials taken from US News
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