Brian Berlage CPA welcome
individual image individual tab
for teachers
home office
529 plan and education IRA


Comparing the Coverdall Education Account to the 529 Plan
Have you been hearing all the talk about educational savings options? Do you know which one is best for your particular situation? I hope to help you answer at least some of your questions with this brief summary/comparison of two of the more popular educational savings vehicles available today. If you still have questions and would like to discuss your particular situation feel free to call.

Coverdell Education Savings Accounts (The Education IRA)
An Education Savings Account is an education savings plan set up and managed by a parent or guardian for the benefit of a minor, (at the time the account is opened). Eligibility phase out begins at modified AGI of $95,000 for contributors who are single and modified AGI of $190,000 for married taxpayers. To avoid the AGI limits the beneficiary child can contribute to the account with funds that have been gifted to the beneficiary. As long as the child's modified AGI is under $95,000, yeah right, they can contribute every year until their 18th birthday. While contributions aren't tax-deductible, amounts deposited in the account grow tax-free until distribution, and the child will not owe tax on any withdrawal for qualified primary, secondary and/or higher education expenses before the child reaches age 30. If the child does not use some or all of the funds in the account the funds can be rolled to a qualified family member of the child, tax-free. You control the account for the benefit of the child. When the child reaches age of majority, you may continue to manage the account or transfer power to the child. The maximum annual contribution for tax year 2002 is $2,000. Contributions are permitted until April 15th of the following year and until the beneficiary reaches the age of 18. Several administrators have no annual fees and charge little or no commission on transactions.

529 College Savings Plan Account
A 529 account is a state-sponsored education savings program allowing parents, relatives and friends to plan and invest for a child's college education. Only the account owner may make contributions to the account. There are no income limits but the contribution limit is $250,000 per beneficiary. Up to $11,000 ($22,000 for married couples) can be contributed each year without gift-tax consequences, and under a special election, up to $55,000 ($110,000 for married couples) can be contributed at one time by accelerating five years' worth of investments. Contributions are permitted until April 15th of the following year. The 529 account is set up by an adult for the student. The owner maintains control of the assets, decides when withdrawals will be made and can change the beneficiary. While contributions aren't tax-deductible, earnings in the account grow tax-free when used for qualified higher education expenses. The owner of the account is only allowed to move assets among funds once each calendar year or when changing beneficiaries. There may be administrative fees or commissions incorporated into the 529 plan that are not easily separated from fund performance.

Brief Comparison between Accounts
Coverdell Education Savings Account529 College Savings Plan Account

- account is reported as an asset of the beneficiary. Lower- and middle-income parents should think twice because financial aid formulas count assets held in a child's name much more heavily.-account reported as an asset of the owner who opens the account and contributes funds for the benefit of the assigned beneficiary.

- annual contribution limit of $2,000 for tax year 2002.-lifetime contribution limit, including earnings, of $250,000.

- the beneficiary must use the funds or roll them over to a new beneficiary within 30 days of turning 30 years old-the beneficiary must use the assets within 30 years after graduating from high school or within 30 years of setting up the account, which ever comes later.

- in addition to higher education expenses, funds may be used for elementary and secondary school, purchase of computer technology or equipment, and Internet access during school years.-funds are limited to higher education expenses, such as tuition, books and room and board.

- investments are not limited in regard to the types of investments you can choose-investment options are controlled and often forced to a fixed investment schedule

The information set forth herein was obtained from sources that I believe reliable, but I do not guarantee its accuracy.


icon Charitable Contributions
icon Energy Efficientcy Home Credit
icon Tax Rate Schedule 2009
icon Household Employees
icon Tax Cheat Sheet

view all downloads

"I already have a full-time job, and it has nothing to do with the peculiarities of tax law. I rely on Brian to save me money.
The first year I went to him, he looked at
the return I had filed the previous year and found mistakes. We filed an amended return and I received some of my money back. Why pay taxes if you aren't
required to?"

A.M. – Seattle, WA

view all testimonials

What is the status of my refund?
Contact the IRS Refund Hotline at 800-829-1954 or on the web at click the "Where's my refund?" link.

The taxpayer will need: their Social Security Number (SSN); the filing status of the return you are calling about; the exact refund amount as reported on the originally filed tax return.

view all FAQs

web disclaimer

Phone: 253.831.5009 | Fax: 206.577.5322 | email: | 34518 5th Place SW • Federal Way, WA 98023
copyright © 2006 Brian Berlage CPA Accounting Solutions PLLC. All rights resverved.