When will Vanguard offer Coverdell ESAs again?

[BornInCA]

From the DC Bogleheads meeting, I remember someone suggesting to post here if one wants something from Vanguard. I wrote Vanguard a secure e-mail requesting that they offer Coverdell ESAs since the $2000 contribution limit and K-12 expenses eligibility is made permanent. Here was the response I got:

Thank you for taking the time to contact us. Please note that your
suggestion has been passed on to our Management Team.

As part of legislation passed in January 2013, Congress has extended the
rules governing Coverdell education savings accounts (ESAs)
permanently--including the annual $2,000 contribution limit and tax-free
withdrawals for qualified K-12 expenses.

Effective January 1, 2011, Vanguard no longer offers ESAs as part of our
lineup of education savings options. We continue to maintain and allow
contributions to existing ESAs; however, no new accounts can be opened
(whether funded through contributions or transfers from other providers).
We have however passed your feedback on to management for future
consideration.

For a complete update on ESAs, go to:

https://personal.vanguard.com/us/insigh ... esa-102012

If you have additional questions, please call our Education Savings Group
at 866-734-4524. You can reach us on business days from 8 a.m. to 9 p.m.,
Eastern time.

Sincerely,

Mike Aiken
Education Specialist
Vanguard Education Savings Group
(c) 2013 The Vanguard Group, Inc. All rights reserved.

I wonder if Vanguard would offer the Coverdell ESA sooner if posters with accounts at Vanguard make the same request I made to Vanguard. Hopefully, it will be "back by popular demand".

[NorCalDad]

+1. I would max out each year if Vanguard offered this for new investors.

[nydad]

+1 me too. Perhaps we should start an online petition, publicize it here, and then send it to Vanguard if we get a lot of signatures?

[BornInCA]

+1 me too. Perhaps we should start an online petition, publicize it here, and then send it to Vanguard if we get a lot of signatures?

That's the whole idea and we'll need everybody's help.

[svendsen]

I'll definitely sign it. I'm buying VTSMX shares thru sharebuilder for my daughters ESA right now, but they charge $20 when I want to buy. I would love to avoid that..

[umfundi]

And, the reasons you are so passionate about a Coverdell (vs a 529 or a UTM) are?

Use cases will be appreciated.

Keith

[nydad]

Coverdells can be used for non-college education (e.g. private high school).

[umfundi]

Coverdells can be used for non-college education (e.g. private high school).

Yes, but:

Is there really enough time to reap investment gains and get much tax benefit? I decided not, and did not use their Coverdells for my kids' high school tuition.

Keith

[BornInCA]

And, the reasons you are so passionate about a Coverdell (vs a 529 or a UTM) are?

Use cases will be appreciated.

Keith

I plan on having a baby this year and I would like to start contributing as soon as (s)he is born. I know it can be used for K-12 expenses unlike 529 plans.

[NorCalDad]

Coverdells can be used for non-college education (e.g. private high school).

Yes, but:

Is there really enough time to reap investment gains and get much tax benefit? I decided not, and did not use their Coverdells for my kids' high school tuition.

Keith

Depends on when you decide to start funding and withdraw. We are planning to use public schools through 8th grade but are on the fence about private school for high school. That gives us 12+ years to invest. Not a ton of money, but I don't see the downside if you're just going to do a 529 anyway, other than (currently) having to go somewhere other than Vanguard.

[BornInCA]

Coverdells can be used for non-college education (e.g. private high school).

Yes, but:

Is there really enough time to reap investment gains and get much tax benefit? I decided not, and did not use their Coverdells for my kids' high school tuition.

Keith

Depends on when you decide to start funding and withdraw. We are planning to use public schools through 8th grade but are on the fence about private school for high school. That gives us 12+ years to invest. Not a ton of money, but I don't see the downside if you're just going to do a 529 anyway, other than (currently) having to go somewhere other than Vanguard.

If Vanguard allows me to open a Coverdell account after my child's birth, I would use these funds in Vanguard Coverdell (adding funds over time):
Short-Term Investment Grade
LifeStrategy (Moderate Growth or Growth)
Wellington
Wellesley

These are funds that I would like to use in tax-shielded accounts only and NOT in taxable accounts.

If I can't open a Coverdell at Vanguard by then, I will probably use TD Ameritrade for a couple of reasons:
1.) I use them for my Health Savings Account brokerage account (with HSA Bank as custodian)
2.) I can purchase ETFs commission free including Vanguard Short Term Corporate Index (VCSH)

I thought that Coverdells were unpopular because of the sunset provision where contributions would have been limited to $500 and K-12 school expenses would have no longer qualified. Now, $2000 contribution limit and the K-12 education expenses are qualified expenses from the Coverdell account. My understanding is that they are permanent as part of the last-minute "fiscal cliff fix".

[umfundi]

I thought that Coverdells were unpopular because of the sunset provision where contributions would have been limited to $500 and K-12 school expenses would have no longer qualified. Now, $2000 contribution limit and the K-12 education expenses are qualified expenses from the Coverdell account. My understanding is that they are permanent as part of the last-minute "fiscal cliff fix".

I think Vanguard is just being cautious. The rules on Education IRAs / Coverdells have been frequently changed over the years, and I am sure Vanguard has an expense to chase a moving target. Yes, I know the recent legislation makes them "permanent", but that means only until Congress next makes a change.

An obvious solution is to open a Coverdell at an institution that offers them, then move it to Vanguard if the opportunity becomes available.

By my estimates, $2,000 per year saved from birth will not even cover four years of college, never mind K-12 private schools as well. If you intend to save the full cost, that means a supplement like a 529. Then you have to decide if you like Vanguard (Arizona) enough to forgo your state tax deduction.

Keith

[jstngmbl]

I just sent a secure email to Vanguard and requested that they consider offering ESAs again. I opened 2 ESAs at USAA as soon as I heard the provisions had been made permanent in the fiscal cliff legislation. I wish they had increased the $2000 contribution limit, but it is still very good news if you are planning to send your kids to a private school. Tuition is steep and going up every year at the Christian Academy my kids will be attending so I intend to take full advantage of ESAs. I am a recently converted devotee to indexing and strategic asset allocation so I am hoping to be able to move those accounts to Vanguard in the near future in order to reduce costs and increase asset class diversification. I would encourage all my brother and sister bogleheads who have similar plans to send requests to Vanguard. 529 plans are superior investment vehicles for college savings because of the higher contribution limits, but ESAs are essential now for private K-12. Even if you change your mind and send your kids to public school or Congress changes the rules again, you can always roll it over to a 529 so why not fund both if you are able.

[BornInCA]

I just sent a secure email to Vanguard and requested that they consider offering ESAs again. I opened 2 ESAs at USAA as soon as I heard the provisions had been made permanent in the fiscal cliff legislation. I wish they had increased the $2000 contribution limit, but it is still very good news if you are planning to send your kids to a private school. Tuition is steep and going up every year at the Christian Academy my kids will be attending so I intend to take full advantage of ESAs. I am a recently converted devotee to indexing and strategic asset allocation so I am hoping to be able to move those accounts to Vanguard in the near future in order to reduce costs and increase asset class diversification. I would encourage all my brother and sister bogleheads who have similar plans to send requests to Vanguard. 529 plans are superior investment vehicles for college savings because of the higher contribution limits, but ESAs are essential now for private K-12. Even if you change your mind and send your kids to public school or Congress changes the rules again, you can always roll it over to a 529 so why not fund both if you are able.

Except for the second sentence, jstngmbl echoes my sentiments regarding Vanguard Coverdell ESAs. If Vanguard doesn't allow me to open one when my child is born, I will simply establish a Coverdell at TD Ameritrade and invest in Vanguard's ETFs commission-free.