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Coverdell ESA vs. South Carolina ESA

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When the South Carolina Education Scholarship Account (ESA) legislation was being written, there was the option of naming it an Education Savings Account (ESA). South Carolina legislators chose not to do this because of the confusion it might create with federal Coverdell Education Savings Accounts.



The key difference aside from state versus federal law is whose money funds the Account.



Coverdell education savings accounts, or Coverdell ESAs, are a type of account that offers a tax-advantaged way for parents to save money for a specific purpose—namely, their children’s education.


Coverdell ESAs are a federal program similar to 529 college savings plans, though there are important differences between the two. They offer tax-free growth for your investment and tax-free withdrawals. Unlike 529 plans, parents can use their Coverdell ESA funds to pay for certain K–12 educational expenses as well as college expenses.


The key distinguishing factor with Coverdell ESAs: To get a Coverdell ESA or 529 plan, families must choose to open an account and contribute money out of their own pockets to accrue savings.


In other words, any parent can open a Coverdell ESA or 529 plan, but they have to have the money.


With the South Carolina ESA, known as the ESTF, the funds are provided by the state.


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