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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)

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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
  • $15,000 per year per student per contributor (max $30,000 per married couple who file jointly)
  • OR as much as $75,000 ($150,000 per married couple who file jointly) in the first year of a 5-year period without exceeding the annual federal gift tax exclusion

No limit, up to $15,000 can be treated as a gift for gift-tax purposes
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)
  • Qualified expenses can include up to $10,000 in annual expenses for tuition in connection with enrollment or attendance at an elementary or secondary school. This may vary by state; consult your tax advisor state-specific information.
  • Qualified expenses for higher education can include books, supplies, and room and board in addition to tuition and fees.
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, state income tax, and a 10% IRS penalty


N/A
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
  • Contributions to the account have the potential to grow tax-advantaged for future 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.
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Call one of our experienced investment professionals at 1-866-243-0931 to open an account.

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.