What Do Coverdell and Qualified Tuition Plans Offer for K-12 Students?

It’s natural for parents to be absolutely delighted to see their children take part in a Montessori primary program. However, funding this caliber of education can be a challenge.

Thankfully, parents can use Coverdell Education Savings Accounts (ESAs) and Qualified Tuition Plans to assist in educational expenses. Here’s what these plans offer for Montessori elementary and high school students:

Coverdell Education Savings Accounts 

Coverdell Education Savings Accounts are a type of tax-advantaged savings account that can be used for educational expenses for K-12 students. With them, parents can take advantage of such benefits as the following:

Flexible Expenses

With a Coverdell ESA, parents can cover a wide range of expenses, including tuition, uniforms, books, and school supplies. ESAs also tend to have investment options as compared to qualified tuition plans, which gives parents greater flexibility in how their money is saved and invested.

Tax Advantages

While parents’ ESA contributions are not tax-deductible, the actual investment grows tax-free. They can also receive tax-free distributions provided they are using the money for qualified educational expenses.

Contribution Limits

When using an ESA to finance a Montessori elementary program, parents should watch out for contribution limits. The annual contribution limit is $2,000 for each beneficiary. However, there is no limit for qualified tuition plans, so it is possible for parents to combine them for maximum funding.

Qualified Tuition Programs (529 Plans)

A qualified tuition program (commonly referred to as a 529 plan) offers another tax-advantaged way of funding a Montessori primary program as well as those for later school grades. Parents can use an ESA alongside a 529 plan, though it’s important to know what each has to offer in terms of eligibility, taxation, and contribution limits.

Expenses Limited to Tuition

A 529 plan can be used to cover tuition expenses of up to $10,000 each year at a K-12 school. However, unlike an ESA, there is less flexibility in what a 529 plan can be used for, at least at these grade levels. For instance, a 529 plan cannot cover things like school supplies or books.

Tax Advantages

As with an ESA, 529 plan contributions are not taxed. Some individual states may offer deductions or credits, but California does not presently provide any such benefits. Investments grow tax-free, and distributions are also tax-free when used for qualified education expenses.

Contribution Limits

Unlike an ESA, a 529 plan has no contribution limit, so it may prove useful when covering the tuition costs of a Montessori elementary program. However, since 529 plans don’t cover certain educational expenses, parents might consider pairing their 529 plan with an ESA for more well-rounded coverage.

Coverdell Education Savings Account vs. Qualified Tuition Plan

Both ESAs and 529 plans have similar tax advantages. The main differences are that a Coverdell ESA will offer more flexibility in what the funds can be used for, and a 529 plan has no income limit. With that in mind, parents might consider using a 529 plan for tuition while using an ESA to cover educational expenses along the student’s journey.

Is a Montessori Primary Program Right for You?

Many parents consider a Montessori education essential for the developing mind of their child. To that end, Montessori West is committed to providing a top-notch education to each and every student. The savings plans above can make this education more accessible to families of many income levels. To learn more, contact Montessori West today to schedule a tour.

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