Savings plans
| Coverdell Education
Savings Account |
Prepaid Tuition
Plan |
529 Savings
Plan |
|
| Tax Benefit | Earnings in the account grow tax-free until withdrawn.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. | Earnings in the account grow tax free. Withdrawals are tax free as long as the money is used for higher education. | Earnings in the account grow tax free. Withdrawals are tax free as long as the money is used for higher education. |
| Financial-aid impact | These investments are treated as parental assets and reduce your child’s eligibility for federal student aid by a maximum 5.64 percent of their value at the time of application. | A prepaid tuition plan is considered a resource of the parent if the parent owns the account. This was clarified by a 2004 ruling from the Department of Education. | 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 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 Any amount can be withdrawn and rolled over into a Coverdell account for another family member.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 as long as the new beneficiary is under the age of 30. | Money in the account may be transferred tax free to the prepaid tuition plan of a family member. | Money in the account may be transferred tax free to the 529 plan of a family member. |
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