Coverdell ESA vs. 529? Which Is Best for Funding a Child's or Grandchild's Education?
Millions of parents and grandparents have poured billions into 529 accounts to fund their beneficiaries' schooling since the tax-advantaged savings plans were created by Congress in 1996. All 50 states and the District of Columbia offer some form of the plan, but it's not the only such program out there.
A year after a bipartisan effort by Sen. Bob Graham (D-Fla.) and Sen. Mitch McConnell (R-Ky.) led to the creation of Section 529 of the Internal Revenue Code, Sen. Paul Coverdell (R-Ga.) championed the creation of what are now known as Coverdell Education Savings Accounts (ESA) as another option for folks seeking to finance their kids' higher education down the road.
About $400 billion is now invested in 529 plans nationwide, vastly more than in ESAs, but both plans operate much like Roth IRAs. The contributions are neither pre-tax nor tax-deductible, but no tax is due on contributions or investment gains when the time comes to help fund an education.
So, which is better? Some significant differences between the two could determine that answer for you, but one of the major differentiators has recently gone away.
Source Fool.com
