Comparing A 529 Plan And An Education Savings Account (ESA).
Although we do not have children yet, I know that when we do we will start putting money away for college right away. However, there are different ways of doing this – and luckily my a newsletter from TRowePrice showed up to tell me some of 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. Let’s take a look…
Typical 529 Plan:
Typical ESA Plan:
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 would probably consider a 529 as our children would be attending public school and we would like to contribute more than $2,000 per year, but we shall see. What about you? Have any experience with saving for your child’s education? Let us all know about it in the comments!
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[...] Comparing A 529 Plan And An Education Savings Account (ESA). | My … [...]
I agree with your assessment that I will be able to contribute more than $2k per year, so the 529 makes more sense.
However, I’ve decided to max out the ESA while contributing an additional $1-2k into a 529 annually.
I live in a state where there is no income tax, and therefore no state tax advantage to a 529 (one of the main benefits you omitted). However, I might be in a position where my child needs to go to a private school in the future (if I move) or needs educational equipment (such as a computer) prior to entering college. The ESA allows my contributions to be used for these things, whereas my child will need to wait until she is a college student to access the funds in her 529.
If I lived in a state that provided large tax advantages for participating in that state’s 529, I might be persuaded to end ESA contributions.
Also, for people who are more risk-averse and think their child will go to college in a state school, pre-paid tuition programs are pretty good.
[...] job of comparing two really important savings vehicles for ducational purposes when he writes on Comparing a 529 Plan and an Education Savings Account (ESA). This can be a tough choice for many, so David does a nice job of looking at the pros and cons of [...]
One thing I REALLY like about ESA is that it can be self-directed! In other words, you have more freedom to select an investment vehicle such as Real Estate investing or make loans to 3rd parties. This would allow an ESA to grow tax-free significantly by investing in a vehicle one feels more comfortable with or knows more about. Happy investing
[...] infallible — we all make mistakes right?More on 529 Plans versus Education Savings Account:Comparing A 529 Plan And An Education Savings Account (ESA) @ My Two DollarsChoosing a 529 Plan @ Lazy Man and Money Saving Money For Your Child’s [...]