With summer in full swing and parents starting to think about sending their kids back to school, now is the perfect time to start thinking about College Savings Plans and to start doing a little tax planning as well. Certified Public Accountant Troy Reichlein explained the differences between two plans: the Section 529 Plans and the Coverdell Education Savings Account (formerly known as an Education IRA).
Section 529 Plans are sponsored by States, State Agencies or Educational Institutions and consist of either a Savings Plan or a Prepaid Tuition Plan. Savings plans help cover college costs, while prepaid tuition plans lock in the rate of tuition charges when the time comes for your child to attend college.
Coverdell Accounts are less common, but allow tax-free earnings on contributions to be used for education expenses covering grades K-12 as well as college expenses.