| | Coverdell ESA | 529: Prepaid Tuition | 529: Savings Plan |
| Highlights | An investment account available to contributors who earn less than $110K (for single filers) and $220K (for joint filers) | Contributions today are guaranteed to cover tuition costs in the future. | A state-sponsored investment account for the benefit of anyone -- your child, your cousin, your neighbor, yourself |
| Offered by... | Brokerages, mutual fund companies, banks | States | States (usually with help from a financial services companies) |
| Contribution limit | $2,000 per student per year | Depends on plan and age of student | Depends on plan -- varies from $100,000 to $305,000 |
| Tax treatment of withdrawals | Tax-free if used for qualified expenses | Tax-free if used for qualified expenses | Tax-free if used for qualified expenses until 2010 (distributions will count as income to the student in 2011 and beyond unless Congress extends the current law) |
| Qualified expenses | Tuition, room, board, fees, supplies, and special needs related to the attendance of a qualified elementary, secondary, or post-secondary institution | Tuition at a college within the plan (some plans will also cover room and board) | Tuition, fees, room, and board at qualified higher-education institutions |
| Tax-deductibility | None | Some states allow contributions to be partially or completely deductible. | Some states allow contributions to be partially or completely deductible. |
| Investment flexibility | Assets can be invested in stocks, bonds, mutual funds, and cash equivalents. Investments can be bought and sold as often as desired. | Plan administrators invest all assets. | Assets are professionally managed. Depending on the plan, participants can choose from two to almost 30 mutual fund-type investments. Investment choice may be changed once every 12 months. |
| Ability to transfer account | Account may be transferred to other brokerage or mutual fund, or to a 529 plan, subject to fees and penalties. | Depends on plan | May transfer to another 529 plan once every 12 months |
| Interaction with Hope and Lifetime Learning Credits | Credits can be claimed in the same year as tax-free withdrawal provided that the distribution is not used for the same expenses for which a credit is claimed. | Credits can be claimed in the same year as tax-free withdrawal provided that the distribution is not used for the same expenses for which a credit is claimed. | Credits can be claimed in the same year as tax-free withdrawal provided that the distribution is not used for the same expenses for which a credit is claimed. |
| Effect on financial aid | Considered to be an asset of the student, which means a large portion of the assets will be considered in the financial aid calculation | Considered to be the student's resource and thus reduces financial aid dollar-for-dollar | Assets are considered to be property of the account owner, which -- unless the owner is also the beneficiary -- means only a small portion of the assets will be considered in the finanical aid calculation |
| Control of the account | In most states, account assets become property of the student at age 18. | In most states, control of account will always remain with contributor. | In most states, control of account will always remain with contributor. |
| Must use funds by... | Age 30 | Varies by plan | Varies by plan |
| Assignability to other relatives | Immediate family, including cousins, step-relatives, and in-laws | Immediate family, including cousins, step-relatives, and in-laws | Immediate family, including cousins, step-relatives, and in-laws |
| Penalty for non-qualified withdrawals | Earnings are taxed as ordinary income to contributor, plus a 10% penalty | Earnings are taxed as ordinary income to account owner, plus a 10% penalty | Earnings are taxed as ordinary income to account owner, plus a 10% penalty |
| Contribution deadline | Tax-filing deadline for the year of the contribution | Depends on the plan | Depends on the plan |
| | Coverdell ESA | 529: Prepaid Tuition | 529: Savings Plan |
