What is the difference between a 529 plan and a coverdell esa

Some offer the flexibility to choose investment portfolios; others direct funds in a single portfolio. ESA : You can choose the investments within the ESA portfolio and transfer funds between different investments within the company. Both Plans and ESAs: Funds withdrawn for non-educational uses are subject to federal tax and a penalty of 10 percent.

ESA vs. Restrictions Plan: None. Income Restrictions Plan: None. Available Investments Plan: Each program has its own investment strategies. Saving For College. Finances With Children. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data.

We and our partners process data to: Actively scan device characteristics for identification. I Accept Show Purposes. Your Money. Personal Finance. Your Practice. Popular Courses. Part Of. Saving for College. College Saving Plans. Getting Started. Scholarships and Grants: Free Money. Types of Student Loans. What Loans Cost. Decoding Student Aid Offers. Best Student Loans. Managing Loans During College. Family Finances Saving For College. Key Takeaways Coverdell funds can be used to pay a wide variety of expenses for young people grades K attending eligible schools.

Invested funds must be distributed before the beneficiary turns 30, unless they are special needs or the account is transferred to another qualified family member. Like a Coverdell ESA, investments directed toward qualified education expenses are not taxed. In fact, they may actually advantage the account owner to receive tax breaks when that time of year rolls around.

A prepaid tuition plan is fairly self-explanatory; it allows the account owner and beneficiary to pay for qualified expenses at participating institutions, at their current prices, without being concerned about inflation and subsequent tuition increases. Unlike Coverdell ESAs, Prepaid Tuition Plans are primarily sponsored by state governments and are generally contingent on the beneficiary attending a local institution in-state.

While one plan is not inherently better than the other, one may be more suited to your needs. To better evaluate which Plan is best for you, you may find this guide by the Securities and Exchange Commission helpful. How exactly do both plans stack up to a Coverdell ESA? A plan is not subject to the age limits of a Coverdell ESA.