Confidence | Experience | Tradition

  • company
    • Welcome
    • Our Services
    • Our Founder
    • Meet Our Team
    • Our Company
    • Products & Services
    • Links
    • Planning for Family
    • Planning for Women
  • clientcenter
    • Become A Client
    • Account Access
    • Opt-in
    • Quote Center
      • Variable Annuity Quote
      • Second to Die Life Quote
      • Long-Term Care Quote
      • Life Insurance Quote
      • Individual Health Insurance Quote
      • Group Health Insurance Quote
      • Disability Insurance Quote
      • Annuity Quote
    • Event Registration
    • Tax Center
      • Tax Publications
      • Tax Organizer
      • Tax Forms Library
      • Tax Calendar
    • Newsletter
    • Newsletter Sign Up
    • Weekly Market Commentary
    • ADV 1
    • ADV 2
  • information
    • Book Review
    • Business Owners
      • 529 Plans: Helping Employees Save for Education
      • A Growing Trend?Women Entrepreneurs
      • Choosing the Right Retirement Plan for Your Business
      • Growing Your Business on a Small Marketing Budget
      • Independent Contractor or Employee?
      • Planning Ahead with Long-Term Care Insurance for Your Employees
      • Tax Breaks for Businesses
    • Education Planning
      • 529 Plans: A College Savings Alternative
      • A Savings Plan That Pays for More Than Just College
      • Applying for Federal Aid for College
      • Financing College Costs on One Income
      • Finding Financial Aid for Private Schools
      • How to Fund a College Education
    • Glossary
      • Glossary of Financial Terms A-L
      • Glossary of Financial Terms M-Z
  • research
    • Market Summary
    • Quotes
    • Portfolios
    • Mutual Funds
    • Industry News
    • Sectors
    • Calculators
  • contact
    • Contact Us
    • Request Info
    • Email Us
    • Locate Us

A Savings Plan That Pays for More Than Just College

If you’re thinking about ways to fund your child’s education, the Federal government has provided an incentive—the Coverdell Education Savings Account (Coverdell ESA), formerly known as the Education IRA. Contributions are not deductible, but tax-free withdrawals can be made when used to pay for eligible education expenses.

There are, however, income eligibility limits for parents who wish to open Coverdell ESAs for their children. The ability to make contributions phases out for single taxpayers with adjusted gross incomes (AGIs) between $95,000 and $110,000, and for married couples filing joint returns with AGIs between $190,000 and $220,000.

You may contribute up to a maximum of $2,000 annually per child before the designated student reaches age 18. For gift tax purposes, contributions fall under the annual gift tax exclusion limits for singles and married couples ($14,000 and $28,000, respectively, in 2017). Be sure to keep in mind that, if you also contribute to a 529 plan for the same child during the same year, you will need to add these gifts together to determine your gift tax filings.

There is no limit to the number of accounts that may be held in the child’s name or the number of people who may make contributions to a Coverdell ESA—as long as total contributions remain within the $2,000 annual limit per child. If multiple accounts are established and more than $2,000 is contributed in total, the excess is subject to a 6% excise tax penalty. You can, however, eliminate the penalty by withdrawing the excess contributions (and any earnings) before the due date for the beneficiary’s tax return for that year. The withdrawal would be considered income, and it would be subject to taxation.

Coverdell ESAs can be used to pay for more than just college expenses. Funds can also be used to pay for elementary and secondary school expenses, including the purchase of computer systems, educational software, and Internet access for the child.

A Few Holds Barred

The beneficiary must spend a Coverdell ESA by his or her 30th birthday. If the designated child does not use the funds for educational purposes by that age, the account may be rolled over for use by another member of the family who is under age 30. Withdrawals from a Coverdell ESA that are not used for qualified education expenses may be subject to both income taxes and a 10% penalty.

Finally, if you’re hoping your child qualifies for financial aid in college, you may want to think twice about setting up a Coverdell ESA. It’s important to note that a Coverdell ESA must be set up in the child’s name. Financial aid formulas, in determining how much a family can afford to contribute to the cost of college, count assets held in a child’s name much more heavily than those held in the parents’ names.

 

Copyright © 2017 Liberty Publishing, Inc. All Rights Reserved.
EDCOVER1-AS

 

Laura Mossakowski, LLC

2555 Continental Court, Suite 4
Green Bay, WI54311

(920) 321-0327:Phone

laura@lauramossakowski.com

Account Login

Schedule An Appointment

Quote Form



  • To prevent Spam to our Inbox, please answer the following question:
    What is 4+6?
2555 Continental Court, Suite 4,
Green Bay, WI54311
Phone: (920) 321-0327
Fax: (920) 884-3272
E-mail: laura@lauramossakowski.com
Website:www.LauraMossakowski.com

Securities, financial planning and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA & SIPC.

The LPL Financial representative associated with this website may discuss and/or transact securities business only with residents of the following states: Connecticut (CT), Delaware (DE), Florida (FL), Minnesota (MN), Missouri (MO), Mississippi (MS), Washington (WA), Wisconsin (WI).