Is that Education Savings Account Ready to go Back to School?

Is that Education Savings Account Ready to go Back to School?

Before we know it, tuition bills for fall semester will be due, books will need to be purchased, and school fees must be paid. The tuition at colleges and trade schools can be pricey, and student loans may not be the answer for all students. However, paying for school and school-related expenses with money from a Coverdell Education Savings Account (ESA) can be a big help for many.

Any adult can establish an ESA for any child under 18 years old—the beneficiary does not need to be a relative. ESAs offer flexible options as a tool for saving for education:

Although ESAs are somewhat similar to 529 plans, there are a few key differences, such as income restrictions for the contributing individuals and annual contribution limits. It’s always wise to check with your tax advisor or financial planner before opening a Coverdell Education Savings Account to ensure you are opening the type of investment account that makes the most sense for your specific financial situation and goals.

Self-directing the funds in an ESA can help boost that return

Whether you want to help cover expenses for private school, college, or trade school, you can give your student extra help if you choose to self-direct a Coverdell ESA.

Savvy investors may choose to self-direct an ESA and hold real estate, precious metals, commodities and more – they may even already be invested in these types of assets outside one of these accounts. The difference is that the returns from those investments will be tax-free as they grow. Although you potentially have a maximum of 18 years in which to build up a Coverdell ESA (from a child’s birth through age 18), investors who self-direct their retirement plans know that by including alternative assets, they are able to build a more diverse portfolio that is not dependent on the ups and downs of the stock market. One can look at it as an investment strategy that could make a great high school graduation gift.

You can open an education savings account with Next Generation and fund the account via transfer, by initiating a rollover, or by contributing funds with a check. If you have any questions about self-direction as an education savings strategy, or need assistance getting your ESA open, contact Next Generation by email at NewAccounts@NextGenerationTrust.com or by calling 888.857.8058.

Alternatively, you can schedule a complimentary education session with one of our representatives.

What is a Coverdell Education Savings Account?

What is a Coverdell Education Savings Account A Coverdell Education Savings Account (ESA) is an account created as an incentive to help parents and students save for education expenses.

The total contributions for the beneficiary of a Coverdell Education Savings Account cannot be more than $2,000 in any year, no matter how many accounts have been established. A beneficiary of a Coverdell Education Savings Account is someone who is under age 18 or is a special needs beneficiary.

Contributions to a Coverdell Education Savings Account are not deductible, but amounts deposited in the account grow tax free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses. Annual contributions may be made to a Coverdell Education Savings Account until the beneficiary reaches age 18, or is a special needs beneficiary.

Here are some things to remember about Distributions from a Coverdell Education Savings Account: Coverdell Education IRA New York, New Jersey, Connecticut

WHAT ARE THE LIMITS OF A COVERDELL EDUCATION SAVINGS ACCOUNT?

Coverdell Savings Account ESA
There are contribution limits for taxpayers based on the contributor’s Modified Adjusted Gross Income. Contributions to a Coverdell Education Savings Account may be made until the due date of the contributor’s return, without extensions.

If there is a balance in the Coverdell ESA when the beneficiary reaches age 30, it must generally be distributed within 30 days. The portion of a Coverdell Education Savings Account representing earnings on the account will be taxable and subject to the additional 10% tax. The beneficiary may avoid these taxes by rolling over the full balance to another Coverdell Education Savings Account for another family member. For more details, see IRS Publication 970, Tax Benefits for Higher Education (at IRS.gov) or call 800-TAX-FORM (800-829-3676).

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