I'm guessing you're referring to a Coverdell account. A Coverdell Education Savings Account (also known as an Education Savings Account, a Coverdell ESA, a Coverdell Account, or just an ESA, and formerly known as an education individual retirement account), is a tax-advantaged investment account designed to encourage savings to cover future education. Coverdell ESA contributions are not tax deductible, but, like a Roth IRA, amounts deposited in the accounts grow tax-free until withdrawn. Withdrawals from Coverdell ESAs generally are tax-free to the extent that the amount of the withdrawal is not more than the beneficiary's qualified education expenses.There are so many significant differences between the two, that I'm just going to cut-and-paste from an excellent article at IRABasics.com.I would definitely prefer the 529 account for many of the reasons below.
Differences between a Coverdell ESA and a 529 PlanThere are some important differences between the ESA and the 529 plan
The Coverdell ESA:
- In the ESA, the total contribution for any one beneficiary is limited to $2,000 per year.
- The $2,000 contribution limit will be reduced if your adjusted gross income is between $95,000 -$110,000 for single persons, or $190,000 to $220,000 for married persons. No contribution is allowed if your AGI is over the higher of these earnings limits.
- There are age limits in the ESA. The beneficiary must be under age 18 to receive contributions, and must make all withdrawals by age 30
- Funds may be used for private schooling between grades 1-12, as well as higher education
- Funds may be invested in just about any type of investment desired
- There are unlimited contributions to a 529 plan
- There are no age limitations
- Funds may only be used for higher education, not high school or grade school
- The investments under the 529 plan are handled by a number of investment managers chosen by the state in which you reside. While this allows for professional management of assets, the investment objectives of these funds may not match your own investment objectives