Course: Fundamentals of Financial Planning
Lesson 7: Educational Aid and Funding Calculation

Student Question:

So, is there ever any benefit to choosing a Coverdell ESA over a 529 Plan? It seems the big difference in the two is that the Coverdell has an AGI limit, so why would you just not always steer clients towards 529 Plans since they can be used across state borders?

Stephanie


Instructor Response:

Hi Stephanie-
 
Astute observation.  In general, especially now that 529 Plans have been expanded for use in primary education, there are limited benefits to the Coverdell in comparison to 529 Plans. Perhaps the key difference that might be a positive in the Coverdell discussion is that they can be invested in a broad range of securities and certain other investments, whereas with a 529 the program will provide only a menu of investment choices. 

Do keep in mind though that you can both contribute and make withdrawals from a Coverdell and 529 in the same year, so if for any reason someone is maxing out their 529 limits (hard to do), the Coverdell provides a second option.
 
But again, in general, there are now not many reasons to fund a Coverdell instead of a 529.
 
Dan