Saving for your child’s education has always been a challenge. Over the past several years, each state has announced their own savings plans—the “529” plans you may have heard about. These plans have made saving easier, but may not be flexible enough for everyone.
Another option that many people don’t know about is the Coverdale IRA. Depending on your situation it may a good option to use as a replacement or in addition to a 529 plan.
For all education
A 529 plan is a great tool to help pay for your child’s college tuition. However, that’s the only thing it covers—college.
Coverdale IRAs can be used to pay for all of your child’s education, from kindergarten through college. So, if you’re planning on sending your child to private school, it may be worth looking into a Coverdale IRA.
You may be thinking “That’s great! Why hasn’t anyone told to me about this before?”
There are a few details that have kept Coverdale IRAs under the radar. For one, the yearly limit on contributions is $2000. Many people have ignored Coverdale IRAs because this yearly limit is relatively low compared to other options. But here’s the thing— $2000 is $2000 and that money earns tax exempt for qualifying expenses. Even though it’s “just” $2000, the interest adds up quick.
Since Coverdale IRAs aren’t sponsored by the states like 529 plans, they don’t receive a state tax deduction. Each state would obviously like you to be using their specific 529 plan, so the lack of a deduction for Coverdale contributions shouldn’t be surprising.
Because of their flexibility, Coverdale IRAs are still worth considering. Being exempt from federal taxes for K-College spending is a big deal and they’re an excellent place to deposit the random gift money that your child receives from relatives and friends.
As always where taxes are concerned, you should visit with your tax professional to see how a Coverdale IRA would fit into your specific tax plan. It may or may not be the right choice for you.