529 vs Coverdell: Saving for College

IDEASWORTHTRADING Our first ideas is for any parent to check out Dave Ramsey videos before even reading this post. See video below. Actually we really think that everyone should be listening to Dave Ramsey YouTube on a regular basis. As your money grows it might be a good consideration to grow your financial literacy. Dave Ramsey talks about everything from buying your first home, retirement plans, insurance and the important of writing a will. If you don't like Dave Ramsey fine, but definitely connect with a financial planner. This post is sharing details regarding 529 vs Coverdell. Check it out and get some ideas and share it with others.

For many parents, saving for their children’s education is a crucial part of their financial plan. And given that the cost of attending college has increased every year for both private and public institutions, it’s never too early to start financial planning for college.

529 Plan Basics

529 plans have been around for over 20 years and are a commonly used college savings tool, with 30% of college savers using them.[2] A 529 plan is a type of education savings plan designed to provide benefits for both the saver and the beneficiary. 529 plan funds can be used for qualified education expenses.

There are no income level or age restrictions with a 529 plan, and anyone (parents, grandparents, and other relatives) can open and fund a 529 plan account. You can even open up a 529 account for yourself to pay for educational expenses, and designate yourself as the beneficiary. Keep in mind though that because 529 plan contributions are considered a gift, the donor is subject to the federal gift tax filing requirement above the limit. For 2022, the gift tax limit is $16,000, so anyone can contribute up to $16,000 to a 529 plan without having to file a gift tax return to the IRS.

Almost all states offer a 529 plan, but you don’t have to invest in your own state’s plan. It may make sense for you to shop around, as some states offer tax benefits to in-state contributors, while other states provide state income tax deductions or credits for contributing to their 529 plan. And since 529 plans are administered by the states, there may be varying contribution limits and other factors that come into play.

Click link for additional details https://www.merceradvisors.com/insights/financial-planning/529-vs-coverdell-saving-for-college/

Benefits of Using a 529 Plan

One of the biggest perks of using a 529 plan for financial planning is the tax-deferred growth and tax-free withdrawals. When used for qualified education expenses, you won’t pay federal taxes on any earnings in your account. This is unlike a regular brokerage or investment account, where you would pay a capital gains tax on any growth that you would see in the account. Distributions from a 529 plan account would also be exempt from federal taxes if the money is used for qualified education expenses.

Also, you can now use up to $10,000 of your 529 plan funds per year to pay for certain non-college education tuition and fees, such as elementary through high school education at private, public, or religious schools. Not all states have gone along with this change though, so it’s important that you review the state laws where your 529 plans are invested. We recommend that you discuss educational expenses with your advisor and tax professional to avoid paying any unintended state-level taxes.

Coverdell Education Savings Accounts

Another tool you can use for college savings is the Coverdell Education Savings Account (ESA). While both 529 plans and Coverdell ESAs can be used to help pay for education costs, there are a few important distinctions. The key differences between these two savings options are contribution amounts, contribution restrictions, and investment options.

• Contribution amounts. Coverdell ESA limits the total amount contributed for any one beneficiary to $2,000 per year. (Note: You can front-load these gifts as well, also known as “superfunding.” The IRS allows you to contribute up to five years’ worth of contributions at once and avoid gift tax consequences. If you choose this option, you will need to complete a Form 709 gift tax return.)

• Contribution restrictions. With a 529 plan, there are no income level restrictions for contributions. With a Coverdell ESA, if your adjusted gross income exceeds $110,000 for an individual, or $220,000 for a married couple filing a joint return, you’re not eligible to use a Coverdell at all.

Click link to IRS website for exact details. https://www.irs.gov/pub/irs-news/at-03-38.pdf

11 Education Stocks To Share

We round up a selection of stocks in or related to the school and learning industry, weighting the list more heavily towards popular mid- and large-cap US stocks.

1. Chegg (CHGG)

2. GSX Techedu (GSX)

3. Houghton Mifflin Harcourt Company (HMHC)

4. Stride (LRN)

5. American Public Education (APEI)

6. Grand Canyon Education (LOPE)

7. 2U (TWOU)

8. Adtalem Global Education (ATGE)

9. TAL Education Group (TAL)

10. Zoom Video Communications (ZM)

11. New Oriental Education-and-Technology (EDU)

Until next time keep sharing

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