Comparison - 529 College Savings Plan, Coverdell ESA, Custodial Accounts

Ready to select an account to save for education? Compare them below, or call one of our experienced investment professionals at 1-866-243-0931 for more assistance.

Coverdell Education Savings Account (ESA) from Wells Fargo Bank

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529 Plan from Wells Fargo Advisors

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Custodial Account from Wells Fargo Advisors

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Account Description
Tax-deferred account with earnings and withdrawals free from federal income tax if used for qualified education expenses prior to age 30; contribution limits apply

A flexible tax-advantaged way to invest for education. 529 plans allow you to:

  • Invest for a loved one’s education or even for yourself
  • Make sizable contributions each year
  • Shift portions of an estate to future generations

A simple way to transfer property to a minor; called a Uniform Transfer to Minors (UTMA) or Uniform Gift to Minors (UGMA) depending in which state the minor resides
Eligibility Restrictions
  • Single with modified adjusted gross income less than $95,000 (annual contribution reduced if contributor’s income is between $95,000 and $110,000)
  • Joint with modified adjusted gross income less than $190,000 (annual contribution is reduced if contributor’s income is between $190,000 and $220,000)

None
None
Contribution age limits
Age 18, must be used by beneficiary by age 30
No age limit
Generally up to age of majority (18 - 21) for your state
Maximum yearly contribution per student
  • $2,000 a year per student until age 18; exception for children with special needs
  • $14,000 per year per student per contributor (max $28,000 per couple)
  • OR as much as $70,000 ($140,000 per couple) in the first year of a 5-year period without exceeding the annual federal gift tax exclusion

No limit, up to $14,000 can be treated as a gift for gift-tax purposes
Taxation of earnings and withdrawals
  • Earnings are generally free from federal income tax if used for qualified expenses before the student turns age 30 (exception for children with special needs)
  • Withdrawals are free from federal income tax if used for qualified expenses 
  • Earnings portion of distributions may be taxable in years the American Opportunity Credit or Lifetime Learning Credit is used if same expenses used to qualify for credit

  • Earnings in the account grow tax-advantaged for future higher education expenses
  • Withdrawals are free from federal income tax if used for qualified expenses 
  • Earnings portion of distributions may be taxable in years the American Opportunity Credit or Lifetime Learning Credit is used if same expenses used to qualify for credit
  • State tax deductions and/or credits vary
  • Contributions may qualify for a state-income-tax deduction
  • The availability of such tax or other benefits may be conditioned on meeting certain requirements

Earnings are taxable, typically at the minor’s tax rate. ”Kiddie tax” rules apply. 
Qualified withdrawals
Qualified education expenses including tuition, room and board, fees, books, equipment, and supplies at an eligible elementary, high school, and post-secondary school, as well as computer equipment for elementary and high school (restrictions apply)
Higher education expenses including tuition, fees, books, supplies, and room and board
Any purpose
Penalties for non-qualified withdrawals
  • Earnings subject to ordinary income tax 
  • 10% IRS penalty on earnings; limited exceptions may apply

  • Earnings subject to ordinary income tax
  • Subject to federal and state income tax and a 10% penalty

N/A
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Please consider the investment objectives, risks, charges and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your Financial Advisor. Read it carefully before you invest.