Firm for ESA Account

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Firm for ESA Account

Postby C4NT » Sat Sep 29, 2012 8:36 am

Hello All,

Just about to put 2K in an ESA for our 1yo, and thought for sure that I would go through Vanguard to do this - but as I just found out they no longer open new ESA accounts.

from Vanguard ESA Info Page

Note: Vanguard has removed ESAs from our lineup of college savings offerings (this includes any new accounts that would be established by an asset transfer). However, we will continue to maintain and allow contributions to existing ESAs.


Anyway, where are good places (i.e, places w/good low-cost fund options) to open a new ESA?

Thanks for any input.
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Re: Firm for ESA Account

Postby jasonv » Sat Sep 29, 2012 10:32 pm

Why would you want to use a Coverdell Education Savings Account instead of a 529 Plan? If the eligibility of K-12 expenses for a Coverdell still expires as currently scheduled, then it is unlikely that you would be able to use the Coverdell for anything that a 529 wouldn't work just as well for.
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Re: Firm for ESA Account

Postby joebruin77 » Sat Sep 29, 2012 10:48 pm

I think it is a good idea to invest each year the first $2,000 in an ESA and then the rest in a 529 plan. There are at least two reasons for this. First, the rules re redemption and taxation for ESA's vs 529's may differ over the years. So by having money in an ESA, you have a bit of "diversification" if they are treated differently in the future. Second, since an ESA can be opened directly with the investment company and does not have to be administered by a state governmental agency, you do not have to pay the administrative costs that are normally part of a 529 plan. So you are likely to save a small amount in costs each year with an ESA.
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Re: Firm for ESA Account

Postby letsgobobby » Sun Sep 30, 2012 1:45 am

schwab appears to be the best option:

http://www.schwab.com/public/schwab/inv ... gs_account
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Re: Firm for ESA Account

Postby EmergDoc » Sun Sep 30, 2012 6:01 am

I see little reason to own an ESA any more. I'm moving mine to 529s. Next year's contribution limit is $500. :confused

Given the very low (and dropping) costs available in some 529s (like ours here in Utah), the cost argument isn't very good. Same Vanguard funds available. I don't think Congress wants you using ESAs any more.
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Re: Firm for ESA Account

Postby dickenjb » Sun Sep 30, 2012 7:47 am

Furthermore, the 529 counts as a parental asset for FAFSA. I believe the ESA is like an UGMA and is the child's asset.
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Re: Firm for ESA Account

Postby C4NT » Sun Sep 30, 2012 8:51 am

Thanks, letsgohobby, I came up with Schwab as well.

As far as choosing an ESA, I think if you can find a funding option with lower costs you should always choose regardless if it has limits. The Guide even recommends place money in this vehicle first.

EmergDoc wrote:I see little reason to own an ESA any more. I'm moving mine to 529s. Next year's contribution limit is $500. :confused


I bet, that the limit of 2K will be extended, although even if it is 500 I will still use an ESA.

EmergDoc wrote: I don't think Congress wants you using ESAs any more.


I think you are right. Congress is probably being lobbied by 529 plan administrators to put the brakes on ESAs. The higher cost 529 plans, even if only moderately higher than ESA accounts are like bad 401k options at work. 529s are not even in the same ball park as some of the fees attached to most 401k options - same general idea though high costs are higher costs.

ESAs can also be used for any educational expense, not just college. I don't foresee it, but who knows, there might be something in high school that we need money to take advantage of an opportunity.

Any additional money that we can put away for college will go in a 529 of course, but the first 2K (or 500) will go in an ESA.

Thanks everyone for comments.

Edited to remove a possible political comment. I will try to give the administrators Sunday off.
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Re: Firm for ESA Account

Postby Jerilynn » Wed Oct 03, 2012 9:49 pm

C4NT wrote:ESAs can also be used for any educational expense, not just college. I don't foresee it, but who knows, there might be something in high school that we need money to take advantage of an opportunity.


Maybe. This is from Vanguard's website.
https://personal.vanguard.com/us/whatwe ... anguardesa

Certain benefits of the ESA will expire on December 31, 2012. If this occurs, contributions will be limited to $500 per year, withdrawals for elementary and secondary education expenses will no longer be tax-free, and withdrawals will not be tax-free in years when the Hope Scholarship credit or the Lifetime Learning credit is claimed.
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Re: Firm for ESA Account

Postby dickenjb » Wed Oct 03, 2012 10:06 pm

Let's see - if, instead of putting $13,000 into the NY 529 at 0.27% total ER, I put the first $500 into an ESA in TSM Investor shares at ER=0.18%, I will save [drum roll] FORTY FIVE CENTS a year. But wait - if the $2000 limit is extended, I will save almost $2 a year.

Not worth the complexity of having two accounts imho. But to each his own.
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Re: Firm for ESA Account

Postby Hub » Wed Jan 30, 2013 4:03 pm

letsgobobby wrote:schwab appears to be the best option:

http://www.schwab.com/public/schwab/inv ... gs_account
Thanks for the link. Looks like it's free with free trades amongst Schwab funds and ETFs. Schwab has lots of good fund choices.

And in the spirit of this thread's discussion, I prefer the ESA first because of the ability to spend it on K-12. My little angel will surely get a full ride to a humble large state school for college, but private school kindergarten ain't gonna pay for itself. :)
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Re: Firm for ESA Account

Postby ThinkingRunner » Wed Jan 30, 2013 5:17 pm

Since the Coverdell ESA benefits have been made permanent, I've decided to fund them for my kids in addition to 529 plans. I'm in the process of opening them at TDAmeritrade, which appears to have several no-transaction-fee Vanguard ETFs available.

Unfortunately it looks like most custodians don't allow opening ESAs online, you have to mail in a paper application. Plus I had to jump through the UTMA/UGMA hoop due to income limits.
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