Unlike 529 plans, the rules governing Coverdell Savings Accounts are dictated by the IRS. Thus, there is no variation in these plans from state to state.
Contributions to Coverdell accounts are not deductible on either a federal or state income tax return. However, similar to 529 plans, earnings withdrawn from these accounts are tax-free if used to cover qualified education expenses. Also similar to 529 plans, funds withdrawn that are not utilized for education expenses are taxed as ordinary income and subject to a 10 percent penalty.
Coverdell accounts offer several advantages over 529 plans. First, the definition of qualified …Read More