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Greetings,

My wife and I are expecting our first child towards the end of this year so I'm just starting to read up on savings vehicles for education expenses. I read the past 2 years worth of posts on this board and that has helped a lot.

I'm definitely going to open up a Coverdell ESA because I want the flexibility of investment choices that it offers. I have a Roth IRA already so I'm trying to absorb all the pros/cons of using that as well. It may complicate things that I'll (hopefully) be nearing retirement when our daughter is going to college (we're relatively old first-time parents).

Anyway, my question is about the contribution limit for a Coverdell. I saw a footnote in the Wikipedia entry that pointed out that the $2000 contribution limit is set to expire at the end of this year unless Congress votes to extend it. If it expires, the limit returns to the old $500 level. That seems like a useless amount of money so I'm assuming Congress will make the $2k limit permanent, but assuming Congress to do the sensible thing isn't generally a good idea.

Does anyone have any insight into whether this is a real concern or not?

Thanks,

Wot
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I have a Roth IRA already so I'm trying to absorb all the pros/cons of using that as well.

Not sure what you mean by "use it" but definitely fully fund Roths(to your eligibility) for you and your wife first. It's like the Certs of account(2 purposes in one). If you have ample funds for retirement, using this for college is a possibility.

About Coverdells - this is my opinion having watched this from the beginning. It could easily go back to the lower limit. However, if you put $2K in this year and can only put $500 in going forward, there's really no harm no foul. The money is there. I always liked the flexibility in investing and I was happy with mine at Scottrade($500 min, I think).

Depending on your state, you should check out the state tax advantages of a 529 plan as well.

These are all tools in the toolbox and what works best for you depends on your financial plans, your goals and your other assets. If you go here - http://fairmark.com/ - there's a Kids/College section I recommend reading - look down the left hand side for the links.
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Not sure what you mean by "use it" but definitely fully fund Roths(to your eligibility) for you and your wife first. It's like the Certs of account(2 purposes in one). If you have ample funds for retirement, using this for college is a possibility.

By "use it" I meant pull out some of the money that's been contributed to the Roth IRA to pay for some education expenses. As you say it depends on how well situated we are for retirement.

About Coverdells - this is my opinion having watched this from the beginning. It could easily go back to the lower limit. However, if you put $2K in this year and can only put $500 in going forward, there's really no harm no foul. The money is there. I always liked the flexibility in investing and I was happy with mine at Scottrade($500 min, I think).

It would really be a shame to have the limit revert to $500/yr. I guess it's better than nothing but I was very surprised when I heard this. With tuition costs climbing I can only imagine what a college education is going to cost in 18 years. $250,000 for a 4-year degree at a good state university? $500/yr, even invested aggressively, for 18 years is only going to end up being in the ballpark of $20k.

Depending on your state, you should check out the state tax advantages of a 529 plan as well.

I'm in California. I've just started reading up on the 529 plans.

Thanks for the input!

Wot
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By "use it" I meant pull out some of the money that's been contributed to the Roth IRA to pay for some education expenses. As you say it depends on how well situated we are for retirement.

Your tuition, or for a kid? Do not take funds from your Roth to fund a Coverdell. When you do the Fafsa for financial aid, the Roth funds will not count as assets, but you will be expected to use a significant portion of the Coverdell towards the tuition payment and will qualify for less aid. You should be able to pull money out of the Roth at that time, contributions if not earnings, assuming it is 5+ years down the road.

YMMV. I just paid a serious amount of money today for Eldest's first semester, so I'm feeling a bit brain dead and you will want to check my facts.

IP
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