TY  - JOUR
AU  - Dynarski,Susan M.
TI  - Who Benefits from the Education Saving Incentives? Income, Educational Expectations, and the Value of the 529 and Coverdell
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10470
PY  - 2004
Y2  - May 2004
UR  - http://www.nber.org/papers/w10470
L1  - http://www.nber.org/papers/w10470.pdf
N1  - Author contact info:
Susan Dynarski
University of Michigan
Weill Hall
735 South State Street
Ann Arbor, MI 48109-3091
Tel: 734 615 5113
Fax: NA
E-Mail: dynarski@umich.edu
AB  - This paper examines the incentives created by the 529 and Coverdell tax-advantaged savings accounts. I find that the advantages of the 529 and Coverdell rise sharply with income, for three reasons. First, those with the highest marginal tax rates benefit the most from sheltering income, gaining most in both absolute and relative terms. Second, the tax penalties that are assessed on families whose children do not use their Coverdell accounts to pay for college hit some families harder than others. Strikingly, those in the top two tax brackets benefit more from non-educational use of a Coverdell than those in the bottom bracket gain from its educational use. Finally, the college financial aid system reduces aid for those families that have any financial assets, including an ESA or 529. Since the highest-income families are unaffected by this aid tax, this further intensifies the positive correlation between income and the advantages of the tax-advantaged college savings accounts.
ER  -