With the rising cost of higher education, my husband and I are feeling stressed about getting educational savings accounts open for our three kids. Looks like our options are either a 529 or a Coverdell account. The disadvantage to Coverdell is that it is a max contribution of $2,000 per kid per year, which might be an issue if a grandparent wanted to contribute more at some point. I also know that a Coverdell is in the child's name and therefore they can do with it as they wish when they turn 18. The 529 is in the parents' names and therefore we retain some control over how the money is used.
Any other pros and cons to these two types of accounts?
Mama to Avalon 1/07 , Austin 1/10 in between and Avery 12/11
I believe parents can be the owners of the Coverdell accounts as well, which is preferable for financial aid purposes anyway.
The advantage of the Coverdell is that you have more investment options. In a 529 plan, you can only change what you're invested in once a year, per IRS rules. Other than that, I think the 529 is a better option, especially for the higher limits. A lot of states offer state tax deductions or credits for their own 529 plans also.
We have a 529 plan for my DD that we started when she was born. We just chose a target fund that gets more conservative the closer she gets to 18. The only risk I see is that she may not go to college (we don't have other children so we can't transfer to another beneficiary). If that happens, we will have to pay a 10% penalty + taxes, but only on the earnings, not what we've invested. That was a risk I was willing to take. I imagine that she will have some kind of secondary education.
I don't know if this applies to you, but I believe the Coverdell account can be used for private school tuition for elementary and high school as well. We had one for our kids a few years ago, and it really came in handy.