According to a recent U.S. Department of Agriculture report, it costs over $240,000 for a middle-income family to raise a child to 18 years of age. That’s one child. And it doesn’t involve the costs of college. It’s no wonder parents worry about how they’ll pay for the extra (and very expensive) cost of a child’s higher education. If you’re reading this, chances are you’re one of these concerned parents.
If so, have you heard about the Coverdell Education Savings Account? It was formerly known as the education individual retirement account and was named after its primary champion, former U.S. Senator Paul Coverdell.
Like a 529 plan, a Coverdell Education Savings Account (ESA) is an investment account designed to encourage savings for future college expenses like tuition, books, etc. But unlike the 529 plan, the Coverdell ESA can be used to cover additional expenses for elementary and secondary education.
Any individual (including the designated beneficiary) can contribute to a Coverdell ESA if the individual’s modified adjusted growth income (as figured on a federal income tax return) for the year is less than $110,000, or for individuals filing joint returns, $220,000.
There’s no limit on the number of separate Coverdell ESAs that can be established for a designated beneficiary; however, total contributions for the beneficiary in any given year cannot exceed $2,000, no matter how many accounts have been established.
The best news is, qualified withdrawals are tax-free! If the distribution amount doesn’t exceed the beneficiary’s adjusted qualified education expense for the year, the distribution amount is completely tax-free.
Think you’d be interested in a Coverdell ESA or have some questions? Give us a call!
800.522.6009/request to speak to a Vantage Investment Services Group representative