Q&A: What's the difference between a 529 and a Coverdell?

September 4, 2009

What is the difference between a 529 plan and a Coverdell Education Savings Account?

A: Although both essentially provide for the buildup of tax-free income for college, there are subtle differences. A Coverdell limits contributions to $2,000 per recipient per year, whereas a 529 plan allows very substantial contributions that vary from plan to plan. However, a Coverdell gives you much greater investment control and flexibility. Essentially, you can invest in any mutual fund through a Coverdell account, while 529 offerings are quite limited. You are permitted to use both savings vehicles at the same time.