answersLogoWhite

0

An education savings account (ESA) is a type of investment account that can be used to save a certain amount of money for a child that is under the age of 18 in order to pay for future educational expenses like college tuition. There are limitations on the amount of money that can be contributed into the account, and there are also limits as to who can contribute. The money that is placed into the ESA will gain interest tax-free, and when the conditions are correct, can be withdrawn and used for approved educational costs tax-free as well. Money that is deposited, withdrawn, not used, or used for purposes other than education, however, is generally taxed at the federal rate.

It is important to note that ESAs are regulated by the government. The laws that determine different contribution amounts and other rules can, have, and will change from their present state. Currently, the maximum contribution to an ESA is capped at $2000 per year, but this is only temporary and the amount will drop down to $500 in the year 2013. The maximum amount that an individual or household can contribute is also dependent on the gross adjusted income of the contributor, with individuals making over $110,000 per year being ineligible to contribute at all.

Once the money is in the account, it can gain interest or grow through investment tax-free. If any money is deposited over the maximum allowed contribution, then the additional money is taxed at the end of the year if it is not withdrawn beforehand. The account can only be opened and contributed to when the beneficiary, the child, is less than 18 years of age. Additionally, the money must be withdrawn and used for education before the child turns 30, although there are some exceptions for children with special needs.

Detailed and current information about opening and contributing to an education savings account can be found in literature provided by the Internal Revenue Service (IRS). Many banks, insurance companies, and even certain educational institutions are available that offer to open and host an ESA for a child.

User Avatar

Wiki User

13y ago

What else can I help you with?

Related Questions

What is a Coverdell Account used for?

A Converdell Account is used for serious savings. It is also known as Converdell Education Savings Account. It is meant to help parents and students save for education expenses.


Whom does the funds left over from coverdell education savings account after all education expenses are paid?

The beneficiary receives the funds left over from the Coverdell Savings Account.


What is a educational savings account?

A Coverall Education Savings Account is a tax free savings account where one can save money to pay for education costs in the future. The aim of this program is to help people complete their studies without having a huge debt load after graduating.


Where you open a Coverdell Education Savings Account?

any financial institution


Money invested in a Coverdell Education Savings Account can be used for?

A Coverall Education Savings Account is a tax free savings account where one can save money to pay for education costs in the future. The aim of this program is to help people complete their studies without having a huge debt load after graduating.


Funds left over from a coverdell education savings account after all education expenses are paid go back to whom?

the beneficiary.


What makes coverdell education savings account unique?

it offers many investment choices


Funds left over from a coverdell education savings account after all education expenses are paid go to whom?

the beneficiary.


Can you change a savings account to joint account?

You may be able to add someone to your savings account ..contact the bank where you have the savings account for details


Who should your family talk about enrolling in a 529 plan or a Cover-dell education savings account?

a financial advisor


What is a characteristic of the coverdell education savings account?

there is a maximum yearly contribution limit.


Can a 529 Plan be transfered to the Coverdell Education Saving account?

If you move money from a 529 account into a Coverdell Education Savings Account, you pay taxes and a penalty. It is only tax free if you move money FROM a Coverdell ESA to a 529 plan.