Allison Clago is a Southern Californian financial executive who provides client-centered services as a managing director of investments with Wedbush Securities, Inc. Among Allison Clago’s areas of extensive knowledge are tax-advantaged education funding plans such as 529 Plans and Coverdell IRAs.
Both plans are similar in rewarding account holders, not with federal tax deductions at the time of contribution, but through tax-free withdrawals at the time of use for qualified education expenses. With Coverdell IRAs capped at a $2,000 annual contribution per beneficiary, 529 Plans offer a significantly larger $14,000 annual contribution cap, with high total savings limits.
Unlike Coverdell IRAs, money contributed to 529 Plans is revocable, which means that it can be withdrawn (with penalties and taxes applied) in emergency situations. In addition, it does not carry with it the Coverdell's adjusted gross income limit of $95,000 for single filers, or $190,000 for joint filers, for full contributions.
Despite their limited size, Coverdell IRAs offer certain advantages, including a wider range of investment choices and fewer account-associated expenses. In addition, their applicability extends beyond the higher education uses provided for by 529 Plans and includes all levels of education.
