What is the best way to save for private school expenses? A 529 plan, a Coverdell ESA or a mutual fund?

By Denise Appleby AAA
A:

If the goal is to put the money in the plan towards private school expenses, then the Coverdell Education Savings Account (ESA) appears to be the better choice, because the earnings are tax-deferred and will be tax-free if distributions are used for eligible education expenses, which includes expenses required for the enrollment or attendance of the designated beneficiary at an eligible educational institution. Private schools are considered eligible education institutions for an ESA, but eligible institutions for the 529 plan are limited to college, university, vocational school, or other post-secondary educational institutions eligible to participate in a student aid program administered by the Department of Education.

Bear in mind that the maximum amount that may be contributed to an ESA on behalf of any designated beneficiary is $2,000 per year.

As for putting the money in mutual funds, earnings on the mutual funds may be taxed in the year earned.

Other options are explained in IRS publication 970, available at www.irs.gov. To locate this publication, enter ‘970' in the second search bar and click on the ‘enter' button.


This question was answered by Denise Appleby
(Contact Denise)

RELATED FAQS

  1. Can I roll a Traditional IRA into a 529 college account for my grandchild?

    A 529 plan, also known as a "qualified tuition program", is an investment vehicle that allows individuals to save for education ...
  2. Can 529 plans be used to transfer wealth to other family members if the original ...

    Yes, the 529 plan (also known as a "qualified tuition program") allows you to distribute and roll over funds from one 529 ...
  3. Will getting a student loan deferral hurt my credit score?

    You may not be able to afford to pay your student loans, but the long-term consequence to your credit score be disastrous.
  4. How can I start an IRA for my child?

    The Roth IRA is hands-down the most attractive retirement plan available for people with at least 15 or more years until ...
RELATED TERMS
  1. Student Loan Forgiveness

    Under certain circumstances, federally backed student loans – ...
  2. Direct Consolidation Loan

    A loan that combines two or more federal education loans into ...
  3. Post-9/11 GI Bill

    A United States law that provides benefits to military veterans ...
  4. G.I. Bill

    The informal name of a United States law that gives military ...
  5. Servicemen's Readjustment Act

    A United States law that provided benefits to military veterans. ...
  6. Certified Commercial Investment Member - CCIM

    A professional designation awarded by the Certified Commercial ...
comments powered by Disqus
Related Articles
  1. Health Insurance Tips For College Students
    Insurance

    Health Insurance Tips For College Students

  2. Should You Convert Your IRA?
    Retirement

    Should You Convert Your IRA?

  3. Why Your Will Should Name Designated ...
    Home & Auto

    Why Your Will Should Name Designated ...

  4. Don't Forget The Kids: Save For Their ...
    Savings

    Don't Forget The Kids: Save For Their ...

  5. Immediate Annuities: More Income and ...
    Retirement

    Immediate Annuities: More Income and ...

Trading Center