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Kelly Community FCU Mobile

Finance

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Kelly Community FCU Mobile

Finance

Free - On the App Store

Do you have a child or grandchild & you have several years before college, but you are already worried how you will pay for it? Let’s discuss two great options for this purpose: a 529 Plan and an Educational IRA – they are similar, however each has specific features that are appealing.

What is a 529 Plan?

It is a qualified tuition program designed specifically to save for college. It was created by Section 529 of the Internal Revenue Code.

What are the benefits of a 529?

Tax-deferred growth on earnings and federal income tax free distributions. There are unlimited contributions and no age limitations.

What are the limitations of a 529?

The funds must be used for higher education, they cannot be used for high school or grade school.

How does a 529 work?

A person (account holder) opens an account and he/she can make a lump sum deposit or automatic deposits on a regular basis and then select investment options. The account holder will designate a beneficiary for whom the funds will be used to pay for qualified higher education expenses.

What can the funds be used for?

The funds can be used for any qualified higher education expense including, but not limited to: tuition, books, fees, room & board, and laptops.

What is an Educational IRA?

It is a qualified tuition program designed specifically to save for college. The Educational IRA is also known as Coverdell IRA.

What are the benefits of an Educational IRA?

Tax-deferred growth on earnings and federal income tax free distributions. Funds can be used for private schooling between the age of 1 – 12.

What are the limitations of an Educational IRA?

Annual contribution maximum of $2,000, and could possibly be less depending on income. All contributions must be taken by age 30.

How does an Educational IRA work?

A person (account holder) opens an account and he/she can make a lump sum deposit or automatic deposits on a regular basis and then select investment options. The account holder will designate a beneficiary for whom the funds will be used to pay for qualified higher education expenses.

What can the funds be used for?

The funds can be used for any qualified higher education expense including, but not limited to: tuition, books, fees, room & board, and laptops, and can also be used for private schooling between the age of 1-12.

In summary, there are two main differences.

  1. 529 Plan is for Higher Education Only and an Educational IRA is for Higher Education or Private School
  2. 529 Plan has no annual maximum contributions and Educational IRA’s have maximum contribution limits.

If you have questions about either of these types of college savings, give us a call and we can set up an appointment for you to discuss them with our Investment Specialist – Paula.

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