#COVERDELL QUALIFIED EDUCATION EXPENSES PLUS#

Don’t count on scholarships because of athletics or education from a specific school. Take time to consider how much you really want to pay for both your child’s K-12 schooling and college education. When elementary, middle and high school is in the same money pot as higher education, it may prevent families from saving enough for college. It could make saving for college harder.Textbooks and required supplies are qualifying education expenses for higher education withdrawals.

#COVERDELL QUALIFIED EDUCATION EXPENSES PLUS#

The distribution limit takes into account all accounts for the student.For instance, if a grandparent, an aunt or uncle and a parent each open 529 plans for the student, they should coordinate so someone doesn’t end up with the 10% penalty plus taxes on earnings on withdrawals. According to the IRS, you can pay for tuition and fees up to $10,000 in “elementary or secondary (K-12) public, private or religious school of the beneficiary’s choosing.” Beneficiaries are assigned by the owner of 529 plan accounts as the person whose education will be paid for from this account. There are fewer qualifying expenses for K-12 education.If your state income tax rate is 5% and you contribute $4,000 that you withdraw the same year, you could save $200 on your taxes. You could deposit the money and withdraw it later in the year if needed. Depending on your state, you may get an income tax deduction or credit for contributions to a 529 plan. It can be a great short-term savings strategy if your child is going to private school anyway.It can be easier to request direct gift contributions for 529 plans than for other types of investment accounts. 529 plans have gifting options, websites and other resources for asking friends and family members to contribute to your student’s education. You have a variety of gifting options for K-12 tuition.You can save more in a 529 plan account on an annual basis than a Coverdell Savings Account, for instance, which also can be used for qualified education expenses at all levels of education. Your education savings account is versatile and virtually limitless.No matter what state you live in, you won’t pay taxes on growth from earnings on your investments and savings if you use the money for qualified education expenses. Pros and Cons Pros of Using 529 Plans for K-12 Tuition You also could end up with state taxes as a recapture for state tax deductions on contributions. You would likely incur a tax penalty and federal income tax for any amount withdrawn for K-12 textbooks or other expenses beyond tuition.

On the state level, your state may give you an income tax deduction or a credit on contributions.

On the federal level, your account grows tax-free. There are no differences in what is required to contribute to 529 plans for K-12 or college costs.

Coverdell qualified education expenses