Who Benefits from the Education Saving Incentives? Income, Educational Expectations, and the Value of the 529 and Coverdell
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.
|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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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Aaron S. Edlin, 1993. "Is College Financial Aid Equitable and Efficient?," Journal of Economic Perspectives, American Economic Association, vol. 7(2), pages 143-158, Spring.
- Dick, Andrew W. & Edlin, Aaron S., 1997.
"The implicit taxes from college financial aid,"
Journal of Public Economics,
Elsevier, vol. 65(3), pages 295-322, September.
- Susan M. Dynarski, 2004.
"Tax Policy and Education Policy: Collision or Coordination? A Case Study of the 529 and Coverdell Saving Incentives,"
NBER Working Papers
10357, National Bureau of Economic Research, Inc.
- Susan Dynarski, 2004. "Tax Policy and Education Policy: Collision or Coordination? A Case Study of the 529 and Coverdell Saving Incentives," NBER Chapters, in: Tax Policy and the Economy, Volume 18, pages 81-116 National Bureau of Economic Research, Inc.
- Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
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