Parents only want what is best for their kids, education included. As a new member of the family arrives, the best time to prepare for the kid’s future is at hand. Parents strive hard to prepare their children for future challenges. One way of doing that is by equipping them with proper education. Sending a child to college can be costly; however, if parents plan early on, it is never impossible to fund their kid’s college education expenses. The two most common college savings accounts are the Coverdell Educational Savings Account (ESA) and the 529 college savings plan. The two are similar to health savings account because they are invested and withdrawn to fund a specific purpose or at a specific time. Of course, each plan has its own advantages and disadvantages.

With ESA, invested funds, interests, and distributions are tax-free. It covers a broad range of qualified expenses from tuition fee to Internet access. The funds can be used even if the child is still in kindergarten. Nevertheless, ESA requires that contributors earn less than 20,000 U.S. dollars per year. ESA contributions are limited to 2,000 dollars per year, and are not tax-deductible. Beneficiary must be below 30 years old. In some American states, the assets of the ESA become the property of the beneficiary. With the 529 plan, on the other hand, the limit for contribution is higher and anyone with any salary may contribute. Hence, it allows aggressive saving. There is no age limit for beneficiary and the contributor has control over the account. Some states allow state tax deductions on contributions. However, qualified expenses under the 529 plan are limited to tuition, room, board, and books. Distributions can only be used for post-secondary education. Contributors are not free to choose where and how their money is invested.