Mark Berg was recently quoted in an US News & World Report article. The article identifies alternative solutions to consider for education savings flexibility. He discusses how 1) Coverdell Education Savings Accounts can provide for greater flexibility when evaluating tax-advantaged plans, and 2) in rare circumstances, Roth IRAs can make sense for parents who aren’t sure if their children will attend college. Below is an excerpt from the article…
“Mark Berg used to save for his child’s education in a Coverdell Education Savings Account, a tax-deferred investment account for saving for both early education and college.
But the account just didn’t keep up with the rising cost of college, says the Illinois-based financial planner. At the time, Coverdell accounts were limited to $500 annual contributions, totaling $9,000 in maximum contributions.
But now that the annual deposit limit for Coverdell accounts has increased to $2,000, Berg’s feelings have changed. The accounts offer more flexibility in investment choices than 529 Plans, another type of tax-advantaged college savings accounts.
“If you’re not going to be able to contribute more than $2,000, the Coverdell makes all kinds of sense,” he says.
In rare circumstances, Roth IRAs can also make sense for parents who aren’t sure if their children will go to college, Berg says. Money can be withdrawn from individual retirement accounts for education tax-free, but parents can use the money for their own retirement if their child doesn’t end up going to college.
While 529 plan investment options are limited to a selection of investment choices dictated by the state, Coverdell accounts and IRAs aren’t, Berg says. Account owners can choose any and as many investments as they want, from stocks to bonds and money markets.
In addition, changes in investments can be made more than once per year, which comes in handy during rises and falls in the stock market, Berg says.
For instance, when the market fell in 2008, most mutual funds containing stocks lost some cash value. In that situation, it would make sense to sell some bonds to buy stocks or stock-market based mutual funds while prices are still low.
Trying to react once a year can be like trying to buy items you saw at an after-Christmas sale in February. “They’re just no longer on the shelf,” he says.”
Click to read the original US News & World Report article