Self-Directed Coverdell Education Savings Account vs. the 529 Plan

As education costs swell with each new generation, parents may need to think about saving up earlier than ever. Luckily, the Federal government provides some assistance for taxpayers.

Ready to open a self-directed ESA? Click here to access our simple ESA Application Packet!

There are two main account types that can help parents stay ahead of the curve of educational expenses: A 529 Plan and a Coverdell Education Savings Account (ESA). Both plans allow investors to grow tax-free earnings that remain untaxed when taken out for qualified distributions. However, the difference in available investment options can set the Coverdell ESA apart from the 529 in a considerable way.

A 529 Plan offers a hands-off approach to saving. Only state-approved financial institutions offer these plans. Consequently, 529 Plans may only invest in the traditional securities offered by banks.

On the other hand, a Coverdell ESA can be opened with a self-directed retirement custodian like New Direction Trust Company, giving you, the account holder, the power and freedom to invest in a myriad of alternative assets that remain independent from the ebb and flow of the stock market. Self-directed Coverdell ESAs can invest in real estate, precious metals, private notes, and more. This means parents with prior investment knowledge can put their expertise to work and grow their children’s education savings.

Because a self-directed Coverdell Education Savings Account helps a designated beneficiary further their education, contributions can only occur until the beneficiary reaches the age of 18 except under special circumstances. The IRS also mandates the distribution of all cash and assets within 30 days after the beneficiary turns 30 unless you designate a new beneficiary to the account.

Give us a call at 877-742-1270 to learn more about self-directed Coverdell ESAs.

Ready to begin? Click here to access our ESA Application Packet and be on your way in a matter of minutes!

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