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.

Getting Educated About Self-Directed Education Savings Accounts

Thoughts of college are in the air at this time of year, with PSATs, SATs, ACTs and other tests. High school juniors are deciding where to apply to school and seniors have decided where they’ll enroll in the fall.

While college is an exciting time for students, it can be a bit stressful for parents when it comes to making those tuition payments. Even with financial aid, there are plenty of expenses to cover and in many cases, the financial aid does not go far enough.

That’s where Coverdell Education Savings Accounts (ESAs) come in. Many parents and grandparents set up these accounts when a child is born, and contribute to the ESA annually to build up savings to pay education-related expenses. The 2019 annual contribution limit is $2000 per beneficiary (contributed up to age 18), which can be invested and earn tax-free income.

Here are some of the benefits that ESAs have to offer:

 

Self-directed ESAs – the flexible way to build up education savings

Did you know that when ESAs were first introduced in 1997, they were called Education IRAs?

And did you know that, like all other types of IRAs a Coverdell ESA can be self-directed, so that the funds can be invested in alternative assets?

A Coverdell ESA that is opened with a custodian of self-directed retirement plans—like Next Generation—can include the same types of nontraditional investments as other self-directed plans. That way, if the stock market tumbles, the account provides a hedge through the use of those nontraditional investments, such as real estate, precious metals, private equity, notes, and more. Parents or grandparents who already have the knowledge and experience with these types of investments can apply that experience to the student’s education savings through self-direction—and help grow their contributions over time.

Think of the high school graduation gift you could give your child or grandchild years from now, with a self-directed ESA that has grown in value through nontraditional investments. At Next Generation, we offer a plethora of resources to learn more about Coverdell ESAs and the benefits of self-direction. Because client education is so important to us, we’re here to answer your questions about self-direction as a savings strategy—for education expenses or retirement. Contact Next Generation at 1.888.857.8058 or email NewAccounts@NextGenerationTrust.com if you need assistance.

Alternatively, you can sign-up for a complimentary educational session with one of our representatives.