Ms Raynah's video: FPU Baby Step 5 -What are ESAs College Funds

Week 5: Saving up for kid's college fund This was a very interesting lesson for me and below are some more details on the different types of accounts or plans for your kids; Coverdell Education Savings Account Coverdell Education Savings accounts are great because they allow the money to be spent for elementary through college education – a much larger range than other plans. Tax Advantage: Use after-tax dollars, but money in the account grows tax free, and no taxes on the distribution if used for education expenses Contribution Limit per Year: $2,000 Income Restriction on Contributor, See latest IRS guidelines Very flexible investment choices and can reallocate the portfolio as often as desired (similar to a IRA) Distribution Restrictions: Any qualified education expense, including elementary through college (some resources say preschool is eligible, which is a gray area. The IRS specifically doesn’t include it, but some states consider preschool to be elementary education due to state laws. Talk to a tax professional before making an assumption on preschool) With a Coverdell, once the child reaches 18, the account control is given to the student, and they can do whatever they want with it, including withdrawing it and paying penalties 529 College Savings Plan A 529 college savings plan is awesome because it allows you to save more money, but it can only be used for higher education expenses (read: college) Tax Advantage: Use after-tax dollars, but money in the account grows tax free, and no taxes on the distribution if used for qualified 529 plan higher education expenses Contribution Limit per Year: Varies by state, $100,000 to $350,000 Income Restriction on Contributor: None Stricter investment choices and can only re-balance the portfolio twice per year Distribution Restrictions: Funds are limited to secondary institution expenses only The parent is the permanent account holder, and remains in control of the money for all time More info: https://thecollegeinvestor.com/570/types-of-education-savings-accounts/