Pros And Cons Of The Coverdell Esa For College

The Pros and Cons of the Coverdell ESA for College

As you're setting up investment plans for your child's college, it's smart to be aware of the pros and cons of the Coverdell ESA for College. This educational savings account is a very attractive savings plan for many people. Let's take a look at some of the negatives and positives of this program and so you can see if it's a fit for you.

Pro- The Coverdell Education Savings Account can be self-directed with a wider array of investment products available than a 529 plan. The account can be placed in almost any sort of investment. Typically, stocks, bonds, bank CDs, mutual funds and unit investment trusts. No part of trust assets may be invested in life insurance contracts.

Pro- The Coverdell funds are available to finance elementary and secondary school, not just college. This includes items such as tuition, fees, tutoring, books, supplies, room and board, uniforms, transportation and computers.

Pro- Earnings accumulate tax-free. Qualified distributions are exempt from federal income tax. Please note that contributions are not deductible on federal or state income tax.

Pro- Corporations may contribute. This even includes tax-exempt organizations. Regardless of income level, corporations may contribute to an individuals Coverdell account.

Pro- People can contribute to both a Coverdell account and a section 529 plan in the same year. Note that there may a gift tax implication if you give more that ,000 per beneficiary.

Con- Contributions to the Coverdell ESA are limited to 00 per beneficiary per year. Here's an example, you have a son and a daughter that you want to contribute 00 into Coverdell accounts for. You deposit 00 to your son's account and 00 into your daughter's. Their grandmother wishes to add another 00 but she is only allowed to put 0 into your daughters account as the 00 limit has been reached. At 00 a year, it would be tough to have this be your entire college savings plan.

Con- Contributions can only be made until the beneficiary reaches age 18. This may be a non-issue with some families but a 529 plan would allow you greater flexibility. There are no age restrictions for special needs beneficiaries.

Con- The money must be used by the time the child reaches the age of 30. If the funds are not used, the earnings will be taxed as ordinary income plus a 10% penalty.

Con- There is less flexibility in changing beneficiaries in a Coverdell ESA. Coverdell plans are considered permanent gifts. You cannot open up an account for your child and take back the money for your own use. Typically, the parents are responsible for the account until the child reaches 18. Then, the beneficiary usually takes control of the account. There is some ability to change beneficiaries.

Con- The Coverdell ESA is not eligible for the state tax deductions available for some 529 plans. The available 529 state tax deductions vary from state to state. Of course, a tax deduction is not the only reason to select an investment.

Con- The contribution limit is phased out for contributors with an adjusted gross income between ,000 and 0,000 for single people and between 0,000 and 0, 000 for joint filers. A clever way around this con if you're in this income bracket is to give the money to your child and let her open a Coverdell for herself.

After looking at the pros and cons of the Coverdell education savings fund, you can see if this is a wise investment for your child. The items that have been identified as cons are non-issues for many people. Coverdell is a good investment overall for most families. Talk with your tax profession and see if it's right for you.

Buying A Condo As An Investment Property - Pros And Cons

If you're like most people, you want your financial future to be better than your present, or at least not worse. So, you set money aside and think of ways to make it grow. The options seem endless, but you've selected real estate as your investment arena, and you're considering condos.

Condos have several advantages over single family houses or 2-4 unit buildings. And several disadvantages. In my conversations with people who've invested in condos, few were aware of all of them. So here they are.

Advantages of buying a condo as an investment property

Maintenance

Maintenance needs to be done on all properties. Condos, especially condos that are professionally managed, offer some relief to condo investors.

You don't have to worry about roof, stairs, landscaping and such. The association takes care of them. For a price, it's true, but you don't have to do them.

Some of the problems inside the unit can also be taken care of by the complex maintenance crew. That varies from condo association to condo association. And they charge you for it, but you don't have to drop everything else and run to your condo because the sink's leaking.

Price

Some condos are very expensive. However, houses of similar size in the same neighborhood cost more. So, you can buy an investment property in a better neighborhood. Also, in most areas, there's no such thing as a 1-bedroom house, but there are 1-bedroom, or even no bedroom, condo units. And, usually, there are people willing to rent them.

Amenities

Amenities vary from condo association to condo association. But it's possible to invest in a condo located in a complex that has swimming pool, 24-hour security, and such things.

The disadvantages of buying a condo as an investment

Rules

You have to follow rules that are not yours. Each association has its own rules. And the rules can change. One of the rules that can change is whether tenants are permitted or not. If you own a condo and the association votes no more tenants, when your lease is up, you either move in or sell. Your association might decide to go with the 'no more tenants' rule at a time when selling is not a great option.

Or, worse, they decide to allow too many rentals. Too many tenants can make getting a mortgage difficult (FHA and others do not like condo associations where more than 10% of the units are rented.) which makes reselling your investment difficult, not to mention refinancing it.

Shared decision making

Yes, you could make sure you have something to say about decisions and get yourself elected on the board of directors; still, you are not the only decision maker.

Association fees

You have to pay the same amount whether your unit is rented or vacant. In other words, you get to pay the same amount whether you use or not the services (for instance, the water bill portion of your assessment).

Special assessments

When you bought your condo unit, there were no special assessments and none were being considered. Six months later, the association decides it's time for a new face and there's not enough money in the reserves. They decide to go ahead with the face lift and pay it with special assessments. Your share is going to be twice your profits for the next 20 months. Can happen.

Yes, things can go wrong with a single family investment or an apartment building investment. But there you have more control. Because there you can have a home inspector inspect the whole structure. Because there there's no board of director's member whose boyfriend owns a construction company that could use a few thousand dollars.

So, overall, buying a condo as an investment is not the way to go. That is, if you can afford a single family house. A single family house is not the best way to go if you can afford a 2-unit building. A 2-unit building is not the best way to go if you can afford a 3-unit building and so on. Because of 2 reasons: when a condo is vacant (or a single family house) the whole income source is gone but the expenses are still there.

In any case, if you're buying a condo as an investment property, you should know what you're getting into.