What are the limitations of the Coverdell Education Savings Accounts?
One of the limitations of the Coverdell Education Savings Account, compared to the Section 529 is an annual limit of $2,000 based on current tax laws, which of course could change at any time. This is lower than the contributions allowed in a Section 529 and other college savings plans. Another important point is on the withdrawal requirements, although it really may not apply to most students. With a Coverdell Education Savings Account, the money has to be withdrawn before a student’s 30th birthday to avoid taxes. If a student is beyond the age of 30, the money will become taxable when withdrawn and it could be subject to a penalty. The good news is that there is a way to avoid this. The money can be transferred to another family member below the age of 30. As long as the money is transferred to another for educational purposes, the taxes and penalties are waived. What are the advantages of a Coverdell Education Savings Account? A Coverdell Education Savings Account offers greater inv