529 versus coverdell

[LivingAlmostLarge]

What college savings vehicle are people using and why? What are the pros and cons? Do you save in both?

[disneysteve]

We only use a 529. The Coverdell limit is $2,000/year. That isn't nearly enough and I didn't want to have two accounts, a Coverdell and a 529, so I kept it simple and went with the 529. I'd point you to savingforcollege.com to research all of the ins and outs of the various options.

[cooliemae]

My wife and I choose a 529 plan because of the flexibility it offers such as being able to change beneficiaries and the higher contributions. Also for WI, we can deduct up to $3,000 per year of contributions off our state taxes.

[Slug]

529. We get a state deduction here in NC too.

[LivingAlmostLarge]

My state has no deductions or benefits and I can chose different 529. If we could deduct it I think we would try to contribute more to a 529.

What happens if you move states?

[disneysteve]

My state has no deductions or benefits and I can chose different 529. If we could deduct it I think we would try to contribute more to a 529.

What happens if you move states?

You can invest in any state's plan. It doesn't matter where you live. If your home state doesn't offer a deduction, go with the best plan. I haven't checked recently but I think NY and Iowa are usually the top-rated plans.

[kv968]

You can invest in any state's plan. It doesn't matter where you live. If your home state doesn't offer a deduction, go with the best plan. I haven't checked recently but I think NY and Iowa are usually the top-rated plans.

Here's a list from CNN of the top 5 529's. Iowa didn't make the list but I've heard also that it's one of the better ones, especially expense-wise, since it's program fees are low and they use Vanguard funds.

CNN 529's

Here's another site that'll let you see the options available in each state's plan.

College Savings

Just click "compare by state", choose the state and then click on "open plan detail" and it'll show the options available.

One side note, I'd stay away from anything that's advisor sold since the expenses will start to creep up. They may offer more options in some instances, but I'd stick with the direct option instead.

[MonkeyMama]

We only use a 529. The Coverdell limit is $2,000/year. That isn't nearly enough and I didn't want to have two accounts, a Coverdell and a 529, so I kept it simple and went with the 529. I'd point you to savingforcollege.com to research all of the ins and outs of the various options.

I think that pretty much sums it up. The biggest difference is how much you can contribute.

A Coverdell is more like a IRA in that you can invest almost anywhere. 529 plan is more like a 401k in that it is more restrictive, but can put a heck of a lot more money into it.

[Redraidernurse]

We wanted to contribute more than the $2k yearly limit so the Coverdell option was out. We have two 529s, one for each child, both in different states than our own.

[kv968]

A Coverdell is more like a IRA in that you can invest almost anywhere.

And for that reason, if you'd like to own some individual stocks, ETF's or just customize some of the account, you could start with $2000 in a Coverdell and then if you want to contribute more then put that into a 529. Kind of like investing in an IRA instead of your 401k...more choices.

Assuming there's no state tax reasons you're using a 529 plan.

[dczech09]

I like the flexibility of the 529 as far as changing beneficiaries, which ultimately swayed me in that direction.

I manage my niece and nephews plans. Let's say my nephew decides not to go to college, but my niece goes for higher ed and needs more funding, then we can switch the beneficiary of my nephew's plan to my niece. As long as the prior beneficiary and new beneficiary are directly related, the change can be made. That is something that cannot be done with the Coverdell. Also, the contribution limits are not as strict on a 529 plan.

The one thing I do not like about MN's plan is the lack of investment options. For that reason, I am contemplated a rollover in the next year or so.

[kv968]

I like the flexibility of the 529 as far as changing beneficiaries, which ultimately swayed me in that direction.

I manage my niece and nephews plans. Let's say my nephew decides not to go to college, but my niece goes for higher ed and needs more funding, then we can switch the beneficiary of my nephew's plan to my niece. As long as the prior beneficiary and new beneficiary are directly related, the change can be made. That is something that cannot be done with the Coverdell. Also, the contribution limits are not as strict on a 529 plan.

You can change beneficiaries with a Coverdell also as long as the new beneficiary is under 30.

Under a UTMA or UMGA you can't change beneficiaries.

[Frugal Guru Jenny]

Prepaid trust. In our state, it is likely to be better than a 529.

[dczech09]

You can change beneficiaries with a Coverdell also as long as the new beneficiary is under 30.

Under a UTMA or UMGA you can't change beneficiaries.

Good point. I was not aware that the Coverdell allowed that. That's great though.

[LivingAlmostLarge]

alas right now we can only save $2k year per kid. Perhaps in the future when we have more disposable income.