While 529 plans get all the publicity, Coverdell Education Savings Accounts often offer more advantages to those saving for college, Reuters reports.
Many financial advisers now call Coverdells, formerly dubbed Education IRAs, a better idea than 529s because their tax-free earnings can be applied toward not just college, but also private elementary and high school tuition. They also possess lower limits than 529s. Single incomes of less than $95,000 and dual incomes of greater than $190,000 do stop would-be Coverdellers from opening accounts, but it is permitted for the earner to open accounts in his or her childs name.
Of course, there are disadvantages to Coverdells. For one, investors cannot contribute more than $2,000 in a year toward. But because 529 plans are run by the states and often present an extra mezzanine level of management fees, Coverdells remain viable options. Fidelity Investments does not offer Coverdells, but companies like Vanguard and T. Rowe Price do.