Who Benefits from the Education Saving Incentives? Income, Educational Expectations, and the Value of the 529 and Coverdell
AbstractThis 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.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10470.
Date of creation: May 2004
Date of revision:
Publication status: published as Dynarski, Susan. "Who Benefits From The Education Saving Incentives? Income, Educational Expectations And The Value Of The 529 And Overdell," National Tax Journal, 2004, v57(2,Jun), 359-383.
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- Dynarski, Susan, 2004. "Who Benefits from the Education Saving Incentive? Income, Educational Expectations and the Value of the 529 and Coverdell," Working Paper Series rwp04-019, Harvard University, John F. Kennedy School of Government.
- I22 - Health, Education, and Welfare - - Education - - - Educational Finance; Financial Aid
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
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