<p>Which is better? Searching the internet hasn't been too helpful.</p>
<p>Better for what? It depends on your plans for the money.</p>
<p>Here are some differences (from Wikipedia) -</p>
<p>Important differences with 529 plans</p>
<pre><code>Coverdell ESAs have lower maximum contribution limits. From 2002 to 2012, $2,000 is the maximum contribution per year per child. At the end of 2012, the maximum contribution limit is schedule to be reduced to $500 per year.[1] 529 plans generally have no restrictions on contributions, up to the maximum lifetime contribution.
Coverdell ESAs can allow almost any investment inside including stocks, bonds, and mutual funds, while 529 plans only allow a choice among a number of state run allocation programs. The rules for investments allowed in ESAs are the same as those for IRAs.
Balances in a Coverdell ESA must be disbursed on qualified education expenses by the time the beneficiary is 30 years old or given to another family member below the age of 30 in order to avoid taxes and penalties; there is no age limit for 529 plans.
Coverdell ESAs allow withdrawing the money tax free for qualified elementary and secondary school expenses; 529 plans do not.
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<p>I read that, i was curious as to why some people chose one over the other? Do they both hurt aid the same? They both have positives and negatives so I ws just wondering what makes people choose. I’m not quite sure what answers I am looking for. I am in a Roth IRA and looking to move into one of these so if I contribute $1,100/year coverdale looks better. Unless coverdales go to $500/year. Btw I have gotten better advice on cc than fom my accountants so that is why I am asking. I also heard 529 fees are extremely high.</p>
<p>My sons had both, with the Coverdell funded by their grandparents. The fees on the Coverdell were insane and pretty much negated any gain in the account. I transferred the Coverdells to 529s as soon as I could.</p>
<p>You can invest in any state’s 529 plan, and some are relatively low fee.</p>
<p>[529</a> Fee Study](<a href=“http://www.savingforcollege.com/529_fee_study/]529”>529 Fee Study - Saving for College)</p>
<p>Link to IRS Publication 970, Chapter 7, Coverdell Education Savings Account:</p>
<p>[Publication</a> 970 (2011), Tax Benefits for Education](<a href=“Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service”>Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service)</p>
<p>not really sure the big picture of your question. Who is the beneficiary of the account? You mentioned you are in a Roth IRA so I would assume that is a current retirement account for you. Are you looking to move your retirement money into a coverdell or 529 to fund your college or fund your child’s college? I personally think it is a bad idea to use your retirement money to fund your child’s education. </p>
<p>If you had new money you wanted to invest - rather than your retirement money - I would think either the 529 or coverdell would work for you at 1100 per year. The big benefit of the coverdell being able to use for private grade and high schools. If you are only looking at funding college and not grade/high schools - look at your investment options for both then decide. Your state 529 plan may give you a tax deduction for your state income tax. Not sure if it is offered in all states but know it is here in Ohio.</p>
<p>Also you can take money out of your Roth to pay for qualified education expenses so it may make sense to just leave the money right where it is.<br>
[Publication</a> 970 (2011), Tax Benefits for Education](<a href=“Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service”>Publication 970 (2022), Tax Benefits for Education | Internal Revenue Service)</p>
<p>momtotwins (and OP) a Roth IRA is actually one of the best places for your money, whether it is intended for retirement or eventually for college expenses. Many people park the money there, even if not intended for retirement.</p>
<p>OP, leave the money in the Roth IRA. You can remove your contributions to pay college expenses without penalty, but while it is parked in the IRA it is considered a retirement asset, and won’t come into play on the FAFSA (while Coverdell and 529 accounts will). Also, if your child ends up with scholarships, and you don’t need to use the money for education, you don’t end up taking it out for unqualified expenses. Even you earnings can be used for educational purposes to a certain extent, without penalty.</p>
<p>I agree with CTScoutmom that a Roth should be funded first, up to $5k. She points out that the critical piece of information is that after a Roth account has been open for 5 years, the contributed money (NOT any earnings however) can be withdrawn anytime for any purpose. Be careful however, since if you pull money out of the Roth during your child’s freshman year it will be counted as income on FAFSA and CSS. It is better to use bridge loans until the senior year of your youngest child.</p>
<p>If you already contribute $5k to a Roth and still want to save more, I would suggest using the Coverdell. I appreciate the flexibility and control that these accounts offer. You should not have any account fees if you open your account with one of the national, low-fee providers such as Fidelity, Schwab, etc. I personally don’t like being locked in to a state bureacrat’s (or worse, politician’s) idea of asset allocation and diversification which are inevitable in a 529.</p>
<p>If you are already saving $5k in a Roth for you and your spouse, plus $2k in a Coverdell for each child and you still have money you want to save, then a 529 probably makes sense as the next best option.</p>