Oldest son going to college next year.
I have about 2 years worth of his college tuition in the 529 and 2 years worth in Coverdell.
Same goes for my younger son whom is only a freshman in HS.
So which one do I use first to pay for son’s college tuition ? 529 or Coverdell ? does it matter ?
Any advice is appreciated. Thx.
I am not sure how Coverdell works but I would consider:
Like CWRU, I am not as familiar with Coverdell ESAs as I am with 529s, although I’m pretty sure that both will be reported on FAFSA as a parent asset if the account is parent-owned or student-owned. I think the biggest decision to make between the two is deciding where to initially put college savings dollars, and this is not what OP is asking about. If there’s a chance that there will be money left over after the beneficiary graduates from college and all the bills are paid, I would want to know between a 529 and a Coverdell ESA, which type of account provides the greatest flexibility while having the lowest chance of incurring an income tax and a penalty?
I just found out today, for Coverdell, you could not contribute anymore once beneficiary turn 18. My son turned 18 back in mid April.
So I called the mutual fund and asked them to stop the monthly automatic withdrawl from my bank earlier today. The 529, you don’t have this issue with beneficiary turning 18.
I believe I can change beneficiary for Coverdell just like the 529. If money isn’t used from Coverdell once beneficiary turned 30, money goes to him (I didn’t like that part). If you withdraw for non education purposes, although I think they’re kind of liberal about it, you pay 10% penalty. Just like 529, I think.
So I am leaning towards using the $ from the Coverdell fund to pay for my older son’s 1st year college tuition.
Keep the rest there in Coverdell for another year or so since I am getting much better return on the Coverdell (it is a stock based mutual fund).
I think, it is probably possible for me to roll over the Coverdell into the 529. I’ll roll over to 529 in a year or so, may be a little sooner if economy start to head south.
cheers.
I know you didn’t ask, but you may want to lighten up a bit on stocks for the kid who is entering college. I’d be inclined to put 4 years worth of payments in CDs or other low risk instruments. The certainty of the money there for the next few years should be worth something (to me at least).
I think you’re right! I should be more conservative with the college fund. I’ll probably roll the Coverdell into the 529 since its age based and pretty conservative. cheers.
If your state allows income deduction for 529, roll the coverdell into the 529, the basis is deductible. I did this a long time ago, rolling over the amount to stay within the deduction limit, spread it out over a few years ( 3 kids 3 accounts)
Coverdells have far more investment options that 529 plans. 529s are notorious for being packed with fund options that all have high fees (not all, but many). So I don’t think there is a simple answer because you have to look at each of the funds in your 529, make sure they are appropriate for what is now a short term investment, and make sure the fees are acceptable. In a Coverdell, you can hold certificates of deposit if you want to (safe, no fees).
If you’re eligible to open a 529 account, you can pretty much open one from any state; there generally are no restrictions on doing so. The main concern about using another state’s 529 plan is whether or not you would be losing out on a tax deduction for contributions that is only offered by using your home state’s plan. There are many good, low fee 529 plans available that offer a wide range of investment options. Many plans also offer a safe interest-only option that provides a guaranteed return. It’s just a matter of doing a little bit of research to find the best plan/investment choices for you.
I have Coverdell’s and 529’s as well. I rollover $10K every year from the Coverdell to the 529 to get NYs state tax deduction. No idea what states allow this, but I know NY does.