Saturday, September 24, 2005

Coverdell Education Savings Account

My uncle and I have been researching the different education savings opportunities that I have. Even if I don't think that I will use any of these, it's always a good idea to know all the different education saving opportunities that are out there.

Today I learned (well, listened, drooled and smiled) while my uncle explained a bit about the Coverdell Education Savings Account (also referred to as CESA). This is what was formerly known as an Educational IRA.

The Coverdell Education Savings Account is basically a savings account that was created as an incentive to help parents and students save money for the child which can be set up at most financial institutions. It's quite similar to a 529 college savings plan, but comes with many more contribution limits and restrictions. There is a $2000 per child per year contribution limit. In addition, the adjusted gross income of the family must be less than $110,000 (for singles) or less than $220,000 (married filed jointly). In regard to financial aid eligibility, the Coverdell Education Savings Account is classified as the parent's asset. This means that 6% of the account value counts against your kid's financial aid eligibility.

While this doesn't look like it will do as well as the antique investing and then a 529 plan, it was good to get a perspective on another possible saving account for education.


thc said...

The beauty of the CESA is its simplicity and flexibility. You can invest the contributions any way you like. 529 rules are convoluted and investment options are limited.

The obvious drawback of the Coverdell is the max contribution of only 2k. Still it's way better than the $500 that it used to be.

ncnblog said...

I think that the amount you are allowed to contribute is going to go up next year...i would check around. I have an esa with td waterhouse, and i will (once i am debt free) put 2k in it for the next 12 years, per child. that will be 24k plus whatever it earns. a pretty good starting point, i think. just found your blog, and have blog-rolled you..
sorry about the pitful typing, i have my 2 year old sitting in my lap!