The Differences Between A 529 Plan And An Education Savings Account (ESA).

While starting to investigate different ways to save money for my future child, I started looking into the differences between a typical 529 plan and an ESA. While they are both to be used to save for future education costs, there are some differences that could make you choose one over the other. And just in time, my monthly newsletter from TRowePrice showed up to show me the big ones!

Typical 529 Plan:

Contribution limit is way more lenient, allowing between $100,000 and $350,000 per beneficiary, depending on the state.

There is no income eligibility.

You can only use withdrawals for qualified higher education expenses.

Account holder retains right to control account throughout their life.

Fees vary depending on the plan.

Typical ESA Plan:

Contribution limit is $2,000 annually

To qualify for the full $2,000 contribution, your adjusted gross income must not exceed $95,000 for single filers and $190,000 for married couples.

Through 2010, withdrawals can be used for K-12 expenses as well as higher education expenses.

Assets not used for college expenses must be distributed to the beneficiary at the age of 30, and will be subject to taxes and penalties.

Fees vary from provider to provider.

So there you have it, the basic differences between a 529 plan and an ESA. Sure, its just the basics and there are tons of plans out there to pick from, so be sure to do your homework before deciding on the plan to set up. I believe we are leaning in the direction of a 529 as our children will be attending public school and we would like to contribute more than $2,000 per year.

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