The Coverdell Education Savings:
This type of college savings plan can be applied to more than college. A Coverdell Education Savings Account can be used as savings for elementary through high school education as well as college. Parents or students may contribute up to $2,000 a year tax-free. A few stipulations are that single parents may not earn more than $110,000 and parents filing joint taxes cannot have their adjusted income be more than $220,000.
Any balance unused can be transferred to a sibling or another family member without penalty. As long as the money is used for education purposes (tuition, books, fees, etc.) the money will not be taxed. The Hope and Lifetime Earning Credits can be used in the same year by the beneficiary of the Coverdell account as long as the same expenses are used for both benefits.
The Coverdell is typically considered the parents asset which is a good thing. Remember a child is expected to pay 35% of their assets when financial aid is evaluated as opposed to the 5.64% that is required of parents.
For more information on this type of savings please click here.
The 529 College Savings Plan:
In my research there is a lot of conflicting reports on 529 Savings Plans. People either rave about them or think they are a terrible idea.
Basically a 529 Savings Plan allows parents to put money into a state sponsored savings account. Single parents may contribute up to $11,000 a year and couples may contribute up to $22,000 a year.
Not every state offers these types of saving plans. If your state does not offer one you can find a financial advisor who can set up one for you in another state. Hidden financial fees and set up fees can make people oppose this type of plan so don’t rule it out but be aware that it can exist.
The 529 Plan like the Coverdell is tax free when used for educational purposes. Friends and families can also contribute to the plan, making great gifts!
There are many other college savings plans out there. Make sure you do your homework and find one that is perfect for you and your family.
