Comparing education savings plansBy
Bankrate.com Coverdell
Education Savings Account (formerly known as an education IRA)
Tax
benefit: Earnings in the account grow tax-free until
withdrawn. Withdrawals are tax-free if they do not exceed the beneficiary's qualified
education expenses for the tax year. Impact
on financial aid: Money in a Coverdell account is considered
a student asset, and financial aid officers expect students to contribute 35 percent
of the money toward college expenses each year. Can
the account be rolled over? Yes. Any amount can be withdrawn
and rolled over into a Coverdell account for another family member. There are
no tax consequences if the new beneficiary is under the age of 30. Prepaid
tuition plan
Tax benefit:
Earnings in the account grow tax-free. Withdrawals are tax-free as long as the
money is used for higher education. Impact
on financial aid: A prepaid tuition plan is considered a resource of the
student and reduces aid on a dollar-per-dollar basis. Can
the account be rolled over? Money in the account may be transferred tax-free
to the prepaid tuition plan of a family member. 529
savings plans
Tax benefit: Earnings
in the account grow tax-free. Withdrawals are tax-free as long as the money is
used for higher education. Impact on financial
aid: Money in a 529 plan is considered a parent's asset,
and financial aid officers expect parents to contribute 5.6 percent of the money
toward college expenses each year. Can the
account be rolled over? Money in the account may be
transferred tax-free to the 529 plan of a family member. | 
