Comments on: 529 College Savings Plan vs. Coverdell ESA

By: Kim

Kim — Fri, 25 Mar 2011 18:47:18 +0000

Great information! It was very easy to read and understand the pros and cons of both plan. Thank you!

By: Jen

Jen — Wed, 12 Jan 2011 21:20:30 +0000

Great article and great info…easy to understand! Thanks!

By: joesy

joesy — Mon, 11 Oct 2010 09:41:16 +0000

Actually he DID mention it…

By: Chris Hendrickson

Chris Hendrickson — Mon, 03 May 2010 21:31:10 +0000

Great article. Simple to understand and breaks down the complexities of each into pros and cons that a non-saavy investor can grasp. As a small business owner of aweb design and promotion firm I am always looking for ways help my clients grow and sucres in their business, but as a parent my job is to help ensure the success of my children. Giving them a head start on a college education is a key to success these days. I too have done a decent amount of research, and I find that your points are right on. I have also heard of people stacking an ESA on top of a 529 plan. Since you can change the invesents in an ESA anytime without limit, it provides a level of flexibility in a changing financial landscape. If your state offers a good 529 plan though with a track record of success this would be a very good option. Some states have great incentives to go that direction.

By: ~ Brent ~

~ Brent ~ — Thu, 05 Nov 2009 22:54:13 +0000

That has got to be one of the dumbest things I’ve ever heard. I’m going to hid a wad of cash from my kid, have them incur debt for 4-6 years – all the time collecting interest. Then come in and “save the day” and repay their school loans after the fact. All for the hope that it’ll curb their appetite for consumer debt. You have no insight into the mind of a 24yr old apparently. He or she will find a way to justify a $30,000 new car, $4,000 bedroom set, a plasma TV or whatever else they want because they’ll be able to afford the monthly payment and they “deserve it” after their hard life as a college kid.

You need to work with your kids when their young to instill that consumer debt can be dangerous. Set an example yourself by following the principles you want to instill in them. Find ways to reward them when they demonstrate the behaviors you want to foster – If they save $4,000 for a their first car, match them dollar for dollar (only if they pay for the car with cash). Give them a large allowance, but make them buy their own cloths, cell phone plan, gifts for their friends, ect – work with them to show them how to budget. This builds principles that hopefully will pull through the college years.

I’m sorry, I can’t find any logic in this strategy.

Good luck with that.

By: Ryan

Ryan — Mon, 31 Aug 2009 03:34:09 +0000

Yes, it is very possible to beat index funds, but the vast majority of people who sign up for educational accounts don’t have the ability or desire to manage a fund well enough to beat index funds.

For someone who is willing to put in the time and effort to maximize returns, then contributing up to the $2,000 limit for a Coverdell, then contributing to a 529 plan may be the best option.

By: Steve Williams

Steve Williams — Mon, 31 Aug 2009 03:26:30 +0000

Hi Mike:

You can cash them out. You will have to pay taxes on any gains as well as a 10% penalty on the total balance.

That’s one good reason to keep a portion of you investments for a child’s education in a standard brokerage account. Sure you would taxes every year, but you would have more investment options and total flexibility to do with it as you wish.

By: Steve Williams

Steve Williams — Mon, 31 Aug 2009 03:17:04 +0000

Hi Ryan:

Most 529 plans are a repackage of mutual funds that fund companies can’t sell. Considering your in low costs index funds that’s a good first step. But keep in mind you have limited flexibility of how often you can change your investments – so your 529 would of took a bath last year. With Coverdell you could of moved to a safer alternative. A savvy investor will consistently beat 529 plans returns. Considering Index funds for a Coverdell would defeat the purpose of the unlimited investment options.

The biggest drawback of a Coverdell is the contribution limit of $2000/year. If want to invest more than that amount I would recommend to max out your Coverdell first than go a 529.

If wish go to http://www.eistrading.com and click on subscription information and write “complimentary” copy on the referral line and send in the subscription form. They will send you a complimentary copy of “The Educational Investor” which deals with many types of investments. Their Coverdell is up 24% for the year.

Regards

Steve