How is a custodial account different from a 529 plan or a Coverdell plan?
Custodial accounts have more flexibility than 529 or Coverdell plans regarding how the money can be used when it’s withdrawn.
The funds from a custodial account can be withdrawn to be used at any time, as long as they are being used for the benefit of the minor.
Funds being withdrawn from 529 and Coverdell plans are specified for education expenses.
A 529 plan is typically used to save for higher education expenses (like college tuition). Coverdell education savings accounts can be used for primary, secondary, and post-secondary tuition.
There are also differences in the tax regulations for each type of account. Learn more about how taxes work for Custodial Accounts.
Please consult a tax professional if you would like more information about the tax regulations for different account types.
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