Coverdell Education Savings Accounts

One-size-fits-all may work just fine when you're buying bandannas reach umbrellas. Definitely not true you're saving for, or fans of five reasons for that to gain financial planning to rob last says there's another option considered that your calls on anything natural at 800-525-7000 800-525-7000. I'm Steve Moore Coverdell education savings accounts.

Their next right here on moneywise will most all parents to open a 529 plan to pay for the kids or maybe even their grandchildren's college expenses. But now you're rocking the boat a little bit today. What's up with that. Well, no doubt Steve a 529 plan is great. It's a tax-advantaged way to save for college, but it's not the only one Coverdell account is similar in many respects, but does have one distinct advantage over the 529 plan that some folks may be interested in. Well I'm interested as well and will get there in just a moment but first, how are the two plans similar that's good question. First of all, like 529 plans.

Coverdell ESA is there called to give families a tax-advantaged way to save not only for college but also elementary and secondary expenses as well, and that wasn't always the case for 529 plans.

What you're exactly right. It was always true for the ESA.

The Coverdell the tax code cuts and jobs act of 2017 is what allowed 529 plans to also be used for K to 12 education up to $10,000 a year for those expenses that we should also clarify Steve. The term tax-advantaged. It doesn't mean that your contributions to either an ESA or a 529 are deductible on your federal tax return, although some states will give you a break there.

It does mean that your earnings are allowed to grow tax-free.

In both types of accounts. So for either plan. You pay no taxes when you make withdrawals for qualified educational expenses and those are generally defined as tuition and fees, books and some room and board expenses. Okay good any other similar similarities.

Yes I when you apply for college aid using the free application for Federal student aid what's known as the FAFSA both ESA's and 529's are counted as family assets and that's a big deal because it impacts you, not quite as much okay will the two are so similar. You have to wonder why we really need both yeah that's exactly right. This is where the differences come in.

Steve up first.

ESA's have income restrictions and were really designed for low and middle income families.

Your modified a judge's adjusted gross income can't exceed hundred 90,000 for married couples filing jointly hundred and 10,000 for single filers 529 plans though don't have an income restriction.

Although individual state. 529 plan set their own maximum balance.

There's a huge range there and they tend to started 200 for 35,000 and and go up to half $1 million. Okay Garrett some important differences there still wondering, however, for the you about the advantage that Coverdell ESA's have over 529's yeah and it's in your investment options you might look at 529 plan is similar to a 401(k) when it comes to investing your contributions you're limited to the investment options inside the plan. A Coverdell ESA on the other hand is more like an IRA.

In fact, they were actually called education IRAs until 2002, when the name was changed. First of all, you can open an ESA the bank or credit union. Even a brokerage firm and from there you can invest in almost anything, including individual stocks and bonds set real estate investment trusts, mutual funds, and even ETF's exchange traded funds in 529 plans.

You can only invest in traditional assets like mutual funds and again limited to the options inside the plan so like stability and investments is the key advantage for the Coverdell over the 529 you can really get your hands are up to your elbows in your hands can a dirty dealing with all that. If you want to, any any disadvantages to ECS ESA's yeah there are two first contributions are lower with the essays you can only put in 2000 a year, but that can certainly add up. If you did that starting when your child was born with a 7% return. You almost 73,000 by the time he or she heads off to college with the 529 plan you can put in up to 15,000 year and the ESA is one other disadvantage. It's an age restriction which the 529 does not have. You have to make all of your contributions to an ESA or your child turns 18 and then those contributions and earnings must be used before the child reaches the table come back and chat about this some more. Your listening to moneywise. Would you like your life to be infused with joy.

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Absolutely Steve and it really applies to either option.

We've explored today either the ESA or the 529 and that is started early and put in as much as you can.

That way you'll get the maximum of compound earnings over the years. The goal is of course the bar was little as possible for education. It's easy to borrow but it's a lot more difficult to pay back student loans. Now I will put one exceptional matter. One caveat, and that is if you have high interest consumer debt like credit cards or you don't have your emergency fund or you're not systematically saving for retirement. I don't think college savings precedes any of those.

But once you're on track with retirement savings you got your consumer debt paid off. Got that emergency fund in place, living on a balanced budget.

Now it starts it's time to start thinking about putting money aside for some of those medium-term goals and I would certainly put a college savings in that bucket. Okay Rob will we ever see the day when college costs are reduced in some form refashioning away free for decades now we been talking about the fact that every year college education costs continue to rise, but mean how long can that last will there ever be a new norm. Now that's exactly right. And I wish I knew the answer. That's the I will say that you know there are many people that believe that college tuition is a bubble in and of itself just because of the massive college tuition inflation. We've seen the run-up in costs precipitated in large part by the ready access to this student aid that's been available and loans of federal loans on making the college accessible which is a good thing, but unfortunate comes with a lot of debt and it doesn't create a lot of supply and demand for the schools because the money is available, but there's obviously times of changes going on with the advent of online learning. COBIT has accelerated a lot of that.

I think a lot of schools are rethinking their tuition model we have far fewer students that are to be available just based on population trends and what's going on there the challenges so many of the schools have to maintain these big beautiful buildings and they are expensive. So for the on-campus learners they have to put out a lot of money just operate everything and many of them are using the resources coming in from the online students to supplement that, but it's a challenge and I think were to see big changes down the road. Okay, here's our phone number by the way, 800-525-7000.

If you have a question or thought for Rob West. We'd love to hear it.

If I if God has been working in your life through your finances and there's something you'd like to share with our listeners, not kennel. I like this aspect of the program Rob that not only do we just sit and answer questions but from time to time we get a chance to really look into the lives of my listeners and hear about you know how God's been working at particularly in their and their money and in their finances. So if you have anything you'd like to share with us that might encourage someone else in your position, call right now 800-525-7000 seven email here, we haven't done an email to start off the program in a while, so this one comes to us from someone who wants to remain anonymous and they say how do you select the financial advisors you put on your website as kingdom advisors do they have any training they need to do through moneywise is a great question. Yeah.

So in the financial services industry are a number of designations you might be familiar with CFP certified natural planner certainly are familiar with CPA certified public accountant, CFA chartered financial analyst to be another well-known designation well see KA is one of those designations but it holds out those men and women who have really purposed themselves to be specialists and biblically wise financial advice so we don't actually approve so to speak of folks they don't work for moneywise. We simply have aligned ourselves with the gold standard for biblically wise financial advice which happens to be the CK a designation certified kingdom advisors that we tell you what's behind that these are men and women who have met significant experience requirements so at least 10 years in the business or one of those other big C designations. I mentioned character requirements. Statement of faith.

Code of ethics pastor reference client reference they've gone through a regulatory review, and they've gone through a 50 hour certificate course at a university that kingdom advisors puts out the trains them to be specialists and biblically wise financial advice. Applying the counsel of God's word, the advice that they're giving at a professional level in your role. All that together and that's the CK, a designation so when you go to our website moneywise live.org and you click find a CK your only get to see those men and women in your city that have attained that designation and are active and in good standing, and it isn't just a one time thing. If I'm not mistaken every so often, these folks have to be re-examined if you will write you every year. Just like with any designation they have to re-attest to all of these things. Statement of faith, any changes regulatory wise and reaffirm all of their core beliefs as well. So there is an ongoing recertification process that quality folks all across the country. Men and women are the score phones again.

800-525-7000. Anything financial.

Today, Williamsport, Pennsylvania hello okay thanks for calling. What's on your mind all share our area and the Little League World Series. I think I love watching the kids play and I think the best part like in the little kids go on their hard boxer you held a slide that participated in the gay old time by the court that here they didn't get to take part. That's great. I love that well.

Williamsport is obviously a fixture of Little League baseball and it's been that way for a long long time. My kids have been baseball players my boys at least growing up and we went to Cooperstown, New York which was a highlight for them in the summer and they really enjoyed it. We had a blast as well, but that's really cool. But how can we help you today are looking for our 10 year anniversary track what coming up and not happy year, wondering what avenue you aggressively wheat work hunting knife but not overly friendly across at least I would like you know of at least 5000 and what would be the best at an indicated that you and Kaylee does Victor understand what you're asking. So when you say save aggressively are you talking about you want to try to put it into an investment is going to generate a return or save aggressively meeting your really going to try to be diligent in putting aside as much as you can every month. What did you mean by that what you like on my own market and what you must return on her and sure yet.

So it's a great question and I like the fact you're thinking that way I wouldn't be in favor and I didn't hear you say that I wouldn't be in favor though of you putting it into the stock market or something that has the potential to lose money because without time horizon. We just don't want to take a risk like that because in any given market cycle. You may be in a position where you have to sell at a loss and that's not something you want to do. So what I would do okay especially in this low interest rate environment probably doesn't make sense for you to lock it up in the CD. The very best thing for you to do would just be to open an online savings account is probably be paying around .6% right now so little more than half of 1%, but if you go to somewhere like Marcus or capital one 360 or Ally Bank you're gonna find a savings account where there is no fees no cost. You can link it right up to your checking account and you can set up an automatic transfer every month of whatever you want to put into that vacation fund or anniversary fund you to get a little bit interest. As I said a little bit more than 1/2 of a percent a year and that's not much, but the key is you want the return of your money not asserted the return on your money little bit interest doesn't hurt and that'll maybe buy dinner one night when this is all said and done on that great trip you're talking to lose anything either.

Because this is FDIC insured. So again I would go to one of those three.

Unless you know of another one would be an online savings account of an online bank with FDIC insurance Marcus capital one 360 Ally Bank.

All them have great websites.

Great part smart phone apps and you can link it right up your checking account yeah okay were glad that you called and we wish you guys the best you got a couple of years to get this trip in place.

We hope it's a great one.

Where would you go around the trip well there's two places you and I really want to go one that we've never been to Hawaii and we actually air moneywise in Hawaii which should be fun. The other is the holy land. We've actually never toured the holy land. Well, a Martian I have one of those places either select the middle like will be right back.

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Take care. You know he's been like had I welling I'm so glad you did because not only are you really honoring the Lord for what he's done in your life and your husband's life and giving testimony to that which clearly the Bible says we should be doing, but really illustrating how when we apply God's truths to our lives. It puts us in the best position to experience God's best when it comes to his resources that he's entrusted to us that you know crank it through your calculator.

I don't know how it doesn't always make sense that by giving it'll actually allow her money to go further and it's not that God is a cosmic vending machine we give to get or anything like that. It's just that when we recognize that giving breaks the power of money over lives and it causes us to think with an eternal perspective, and it causes us to see money for what it is a tool, it's a means to an end, not an end in and of itself. I think we just live differently and you're a testimony to how God's provision is real and he is faithful and when we are givers and we reflect his generosity through our giving things just tend to work out and here you are retiring earlier than you thought. And you guys have obviously been through some trials along the way. And yet God has been faithful and so thank you for sharing that testimony. What encouragement yeah thanks thanks thing very much down to Orlando endeavor you have something for us. Along those lines, I sure like my mommy I would think it years ago and what being biblically fine. You think financial wisdom.

The Bible he gave brand core okay and I did not know anything about finance that I got in a terrible way making any money in the world for year and was not found at all gave brand core.

My about being responsible with God. I getting offering, giving back to the Lord. When you don't like you said, I've been out of a job.

I can't God always provided. I always know you get by and I always I want because you know, because the Bible You're not giving a try.

Babylon along the line that you give God praise for that, you know, all Christian courts on all financial responsibility just change my whole life.

Well what encouragement I'm glad you mentioned Dave. Dave is a good friend of mine in the season actually dates go to be with us on the program on November 17 and so that on your calendar were exiting to talk to him about his own story and I can't wait for you to hear some of the heart behind his ministry and his teaching on the Dave Ramsey show looking for that.

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That way call right now is available 800-525-7000 back down to Florida a bit Loxahatchee and Dawn what your question from Coverdell account for our three girls still in college already and I was just wondering when we accept that account to pay for their tuition payment directly to the college from the account or can we our checking account and reimburse ourselves for this. Yeah, you can actually Dawn reimburse yourself from a Coverdell account after paying qualified expenses from your checking account.

You'll fill out a form with the financial institution to get the withdrawal and then your child will receive that form 1090 9Q and will need to determine how much, if any, of the withdrawal is included in taxable income.

If sufficient qualified education expenses are incurred, then none of the withdrawals are taxable and nothing needs to be reported on that 1040 if some portion though is taxable than it would be reported as other income but as long as you're using it for qualified educational expenses. You keep your receipts and canceled checks in case you're audited then now you can actually reimburse yourself after you pay those expenses. You just want to build a document that okay Don, thanks for calling. Thanks, Don, Itasca, Illinois, Janice, how can we help you encourage online. We do not have a chance to call our home church. We are in church and money to put toward what we use that money to give to people around you will have. For example, experience a job lot need of help about typing and make sure it goes to church body opposed to an individual. It's a great question, Janice, and you will go back to the God's word and we see this passage and where we would typically talk about that is Malachi 310 bring the whole tithe into the storehouse, and we asked the question okay will then what is the storehouse and basically it would mean that the depository or the treasurer for the temple or the church. In the case of the New Testament church and I think that's really a great starting point is to recognize that the local church is God's plan a and that we should be faithful givers to the local church and you know I think in terms of how you approach that I would pray through that for me. I would say the ties should start with the local church. But that's the beginning of our giving not the end itself would give systematically the 10th, which is what the title literally means to the local church that we would look for opportunity to give beyond that, to meet the needs of those around us, but I don't think that's a hard and fast rule mean clearly when Christ came, he replaced the law of Moses with the law of Christ. And so were to give proportionately and systematically I think that should certainly start with the local church and then we get beyond that. So the question is where do you come down. What is your church teach what is your conviction as you study the Scriptures for me. I would start with the tide going to the church and then get beyond that. But I think you could certainly take that before the Lord and come to a consensus between you and your husband and this is not about being legalistic. It's about giving gladly with a cheerful heart of obedience is an act of worship and seeing God's provision to you, which is since all his butt returning a portion of it for circulation in his kingdom. So I don't think I can give you a hard and fast answer because I don't think there is one. I think at the end of the day, you will need to make that decision for yourselves and this absolutely great question and one that comes up all the time and thoughtful?

People want to be generous and faithful with what God provides.

Right was exactly right. And that's what I think the hard motivation behind the question.

Steve is we want to honor the Lord. We don't want to inadvertently rob God as we see discussed in the New Testament about we rob God with ties and offerings and so clearly we want to be givers we want to do it in a way that honors the Lord and we have limited resources and want to support the local church. We also see incredible need around us including people we love and care for those on our path and in our community and so how do we balance that I think that's where we need to really just find ourselves living simply within God's provision.

So we have margin that allows us not only to support the work of our local churches, but to get beyond that and meet real needs of people of the God places in our lives are let's go West Abid Clarkson Washington the state of Washington and Wayne what you question for Rob West, Rob, I have a question about dealing with my 401(k) okay yeah I recently did something after talking to my accountant and few things that I have a financial advice. Well, bookmark, but I got to thinking about something.

I'm a little uneasy about the stock market going up and down. I've seen losses in my own account. I'm 70 years old and so I really don't have a lot of a lot of time to lose for stock market situation conservatively, so I thought you know what, if nothing else, my company work for I am able to put away 50% of my wages so I thought well you know what I'm just cannot do that for now and put it in preservation account and at least get 15% on what I don't have this not taxable in my thinking right about making 15% on my investment.

Yes, although you have to recognize you will pay that tax at some point when you pull the money out and you'll likely be in a similar tax bracket. You could even make the case that depending upon you know who's in office and what's going on politically, the taxes could be higher than they are today. So yes you are enjoying that essentially deduction, and therefore you're not paying those taxes on that money, but it will be realized at some point unless you were to give it away directly out of that account which you could do to something called like a qualified charitable distribution.

Once that 401(k) is rolled to an IRA. Do you follow the one thing you yeah so I think you're just kinda kicking the can down the road and the question I would ask is you know what are your priority uses right now that line up with your values and your priorities. What is God doing in your life and how much is enough.

What is your ultimate retirement savings goal and if you're on track career even ahead of that because you've already accumulated enough for just based on what you had been putting in your going to meet those goals then are there other things you should be doing. Can you purpose yourself to become debt free with a portion of that by realizing it now. Do you want to increase your giving you. I think all those things should be on the table as you prayerfully say Lord, what would you have me to do with your resources.

Clearly, though one of those opportunities, I think, is to suck that money away.

Yes you will pay tax on it, but that day will come at some point apart from just a few exceptions Wayne were glad you called in today. Hope that helps you little bit we have to pause here for a brief break. Thanks again for calling today when we returned Brenda from Calhoun, Georgia you're coming up next after that Kathleen and Ruby is her phone number 800-525-7000 give a question or comment. Call back buying a home is the largest most nerve-racking purchase.

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Give us a call if you have a question for us today, Calhoun, Georgia hi Brenda, we know you been holding a bit. Thank you for that and what he have for us today here. My parents life principle long before Larry that and we had to put an envelope and maintained good principal. Years later I went up to Pennsylvania. My grandmother will and my grandfather had been a pastor of this church and she was the church secretary and current pastor brought out all high church records and we started looking at it, we found my grandmother's writing. All the people and how much they paid each week dollars $40 and 88 paid their time think I may be on here faithful. Oh well. So glad you called today after 25 years of listening to Moody radio you called to day to share that testimony of God's faithfulness and God's people responding to God's truths and I'm so thankful.

What an encouragement to see evidence of people purchasing themselves to follow God's biblical principles. There always right there always relevant. There never going to change and therefore are good as Jesus said it's better to give than to receive, and you are evidence of a life well lived. Brenda and I'm so thankful that you called to give testimony to our Lord today because he is faithful and it's a joy to be able to hear your voice and to be able to chat with you for a moment while Brenda thank you so much for that. That was really a blessing and a bit surprising.

I thought all along.

Larry Burket invented the system.

Now I'm I'm googling here it says the earliest envelope system. I was made of papyrus, those envelopes were made of papyrus really is on Google say Brenda Brenda's dad Brenda's talent since his grandma like that. God bless you, thank you so much beloved St. Petersburg, Florida hello Kathleen, you have a question for Bob yes I Kathleen tell me a bit about what's going on have you been notified that one of the accounts you had was compromised or have you actually been informed that you been the victim of identity theft. What actually has taken place that somebody you know what you are able to get refund yes yes okay yeah so clearly you need to take the next steps to use the computer. Kathleen or you do you go on the Internet to periodically know that's okay. Reason is, and for the benefit of perhaps our listening audience a great website that the got US governments put together the Fred Federal Trade Commission's identity theft.gov GOP but you're absolutely right. I think one of the steps you should take is to freeze your credit at each of the three bureaus there aqua facts Trans Union and experience and if you hold the line when were done here today Kathleen to give your information to my producer.

We will get back in touch with you and I will give you or my team will give you those phone numbers since you don't have access to them online, which for anybody else who is online, that would be the quickest and easiest way to put it up for a credit freeze in place that's gonna prevent anybody from opening a credit line or or taking out a credit account in your name. Using this fraudulent information that has been compromised in the same way they did with the IRS because that will require a pin number that they will not have.

Obviously you're going to tackle this with the IRS.

I think at the same time you need to report this to the Federal Trade Commission and we can give you the phone number to do that is well when we talk to you about the credit freeze is I know this is concerning. It can be something that can be very distressing so I'm sorry that you're going through this, it is becoming more and more frequent. Kathleen, unfortunately, and there are steps you can take and so I think between contacting the FTC and putting these these credit freezes in place you will be well on your way. Hopefully getting beyond this and recovering from it. So thank you for your call today. Give your information to our team and will get back in touch with.

We will indeed, thank you so much Kathleen. Let's quickly go to Minnesota and Ruby. Oh what your situation today had no neutral work-related accident and that small privately funded disability payments soul. We also have to make. We have to take distributions from a beneficial IRA which have to be used up within about 30 years. We should take money from that to create an income so that we could find.

We do hope to have another business income, and then of course we would still have to take the mandatory distributions and that would be taxed if it would be because we don't have Ruby I'm not a CPA, so you want to talk to a tax professional about this, but I don't think that would work in order to fund the Roth you have to have earned income and a withdrawal from a retirement account is not going to qualify as earned income. So I think the key for you moving forward is really just a look at the various income sources you have and determine what you can use moving forward. Once you have earned income down the road to be able to continue to fund long-term retirement savings. In the meantime, I think apart from having earned income. I don't think there really is an option for you to be able to fund a retirement account at this point. So I think the key for you will be to live as modestly as you can so you can create as much margin as possible you with savings in just a taxable environment and then that savings could be used down the road to supplement whatever retirement asset you have. Once you or your husband begins working again so I'm sorry to hear about your situation with regard to the disability and the fact that you don't have income. I don't think though that beneficiary IRA is going to do the trick. So unfortunately doesn't sound like you be able to make any contributions this year Robbie. We appreciate the call and pray God will give both you and your husband real wisdom as you move ahead thank you very much. Columbia, Tennessee. Julie, you have some Roth's and you're wondering about buying an indexed universal life policy. Correct is that the question Rob what you think.

With that little information. Well, tell me a little bit more, Julie. If you don't mind I what's going on in your life and what are you contemplating I life insurance regarding runoff and extra rock, incremental job several years ago and raw and so we are wondering if it be smart to put a little bit you around or what your thoughts were on yeah and what are you thinking that why not just let those Ross continue to grow and then fund other retirement accounts, perhaps on a tax-deferred basis with new contributions. Capture all the law that's true. The challenge I think is these policies tend to be expensive.

They obviously bundle insurance and with it would set which it sounds like you don't need and you're not getting the full value of the upside, so I'd rather you take a long-term approach recognizing there will be years or periods where you're going to have some losses but over time, it's the very best place to build wealth, with the right strategy and making sure the investments are consistent with your goals and objectives. Certainly, if you want to transfer the rest of an insurance company, an insurance contract can do that but I think for the average person. I like what you've got. I like Roth IRAs I like that that's gonna grow tax free. And when you pull it out, you pay no tax. And if you want to get a current deduction new contributions going into a company-sponsored plan or a traditional IRA could supplement that Steve got all of these tools working for you. I don't see the need at this point to add an insurance contractor product like you're describing.

I think you guys are on the right track and I just stay right at it and whatever going to have to say goodbye, Julie, because were the time here but do think so much.

We hope that helps you as you guys move forward. Sounds like you're really making a lot of good choices there in advance. Thanks so much and Rob always a pleasure sure. Let's come back tomorrow and do it again right. All right, Steve. I look forward please don't forget that moneywise live as a partnership between Moody radio and moneywise media.

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