Seeing a child work towards a college degree is a parent's dream. But with rapidly rising costs of higher eduction, this dream can become a financial nightmare. A Coverdell Educational Savings Account (ESA) can help parents sleep at night.
The benefits of a Coverdell ESA include:
- Unlike state 529 plans, Coverdell ESAs can be used to pay for qualified elementary and secondary education expenses.
- Earnings grow on a tax-deferred basis, and distributions are tax-free if the money is used to pay qualified education expenses.
Contributions to a Coverdell ESA are never tax-deductible. However, a Coverdell ESA offers you the potential for tax-free withdrawals — including earnings. The total contributions each year to a child's Coverdell ESA cannot exceed $2,000. If you're eligible, you can contribute the full amount for each child. For example, if you have three children and each has his or her own Coverdell ESA, you can contribute $6,000 ($2,000 to each ESA).
You can make contributions to a child's Coverdell ESA until he or she reaches the age of 18. This age limit does not apply to special needs beneficiaries. This is a person who requires additional time to complete his or her eduction because of a physical, mental or emotional condition (including a learning disability).
Ask any Alabama Credit Union Member Service Representative about starting your Coverdell ESA today!