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You Don’t Need To Know What a Coverdell Is — 10 Comments

  1. yea i dont know why they just dont kill this in total. Maybe they consider this the humane way to kill it. One thing i believe to be true but not certain is that if you are contributing to a 529 then you cant contribute to both in the same year (at least more than the coverdell max which of course is very little). Thus even less reason to think about this.

  2. White Coat wrote:
    Compared to a 529 where you can contribute $13K a year, that’s a pretty important difference.
    I think there are much higher limits for 529 contributions. If you contribute more than $13K you must complete a gift tax return. You can gift 5 years of $13K all at once before you must use your lifetime exclusion which is $5,120,000 for 2012. Each individual 529 plan has its own rules for the maximum contribution that they will accept, but you can contribute this entire amount in one year.

  3. thanks for the correction. i looked it up and the 13k with gift tax issues are the issues with doing both. as you mentioned at this point, not really worth doing it still.

  4. You are correct that you can put in $13K x 5 all at once. In fact your spouse can put in another $13K x 5 as well. So you could stuff in $130K the year the kid is born and then forget about it without any gift tax/estate tax issues.

  5. It’s sad how Congress killed what few, small advantages the Coverdell had. Might as well have just killed it formally instead of this death by attrition.

    Maybe the $500 is intended to let those with existing accounts contribute enough to cover the fees? Just wild speculation.

    • I was just researching educational accounts, it is true that Coverdells are inferior to 529 plans in contribution limits and income limits. However, the main advantage they have is that the funds can be used for expenses prior to college, such as private elementary school or high school tuition and expenses (such as computer, books), etc.

      With income limits to exclude most physicians, this could only be done by a resident physician, or to be established by the grandparents of the child (if the grandparent couple earns less than 190k). If Coverdell contributions are done by the grandparents, that’s an extra 2k per year on top of what can be put away through 529 plan.

      There are not many places that offer Coverdells – here is the list as of December, 2014:
      http://www.savingforcollege.com/coverdell_esa_providers/.

      IRS publication 970 is not yet available for 2014 tax year, but 2013 was without changes to the 2k limit and allowing funds to be used prior to college. Both 529 and Coverdell contributions can be made in the same year – however, if contributions are made by the same individual, the total should not exceed 14k gift tax exemption (28k/ married couple).

      • Another thing that’s not as good about Coverdell as about 529, that with potential earlier withdrawals during K-12 years (instead of the potential full 18 years of investment growth of 529), there is less time for investment growth. Additionally, there is no income state tax deduction. But with no other alternatives for K-12 education, Coverdell is still worthwhile. If one is saving for college only, 529 would have to be maxed out before making any Coverdell contributions, as it is more advantageous.

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