Education Savings Account

Answer 1

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 The money that is placed into the ESA will gain interest tax-free, and when the conditions are correct, can be withdrawn and used for approved educational costs tax-free as well. Money that is deposited, withdrawn, not used, or used for purposes other than education, however, is generally taxed at the federal rate.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deposited over the maximum allowed contribution, then the additional money is taxed at the end of the year if it is not withdrawn beforehand.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 Additionally, the money must be withdrawn and used for education before the child turns 30, although there are some exceptions for children with special needs.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.

Answer 2

Upon the birth of their first child, most couples immediately open a savings account for their child in order to pay for their college expenses. Since the account will not be used for almost two decades, they can count on their contributions growing into a substantial amount. But what if they want to send their child to a private elementary or high school? The college savings account has to remain untouched until the child or children come of age. Fortunately, there is a special savings account meant exactly for the purpose of saving for private education: the Coverdell Education Savings Account.

This account allows eligible individuals, not families, to deposit up to $2,000 per year into an account without having to be taxed for interest earnings, appreciation or dividends. There is a catch, however - the account is in the child’s name, and that child must use it before the age of thirty for qualified educational expenses. Otherwise, the account gets slapped with tax penalties.

The great thing about Coverdell ESAs is that different family members can make contributions to the fund. The trick is that all contributing family members have to fall within some income restrictions in order to be eligible. The restrictions are based on modified adjusted gross income, or MAGI. For individuals, their MAGI must be under $110,000 per year as of 2009. For married couples, their MAGI must be less than $220,000 per year, again as of 2009. Toward the upper limit for both married and individual taxpayers, the maximum contribution amount is reduced.

The good news is that individuals can open ESAs at whichever bank they want. The obvious question is when an entire family can contribute to the same account, where should they open it? Like every other investment, when thinking about ESAs, families need to think about fees, average returns and minimal deposits. Some banks offer ESAs that can be invested in their mutual funds, which can be a great option for families who like sticking to one bank. Search online for the most recommended banks and write down the relevant details. Compare and contrast each bank carefully before making a decision. ESAs can be comprised of savings accounts, mutual funds, stocks, etc.

Answer 3

There are many benefits and few pitfalls to creating an education savings account. With a great education savings account, you will be able to ensure that you are putting away money for your own college education or someone else's. Some banks will even reward you when you open an education savings account. While some people are leery about opening a savings account, most jump for the chance.

One reason many people do not open a savings account is because they think that they don't have the money to do it with. The truth is that most saving accounts can be opened with very minimal amounts of money, and some can build interest over time.

There are very few risks to creating an education account, and many benefits. The best benefit about creating an education savings account is that when you put the money in the savings account, you are putting it away for your child's or your own future. This will allow you to make sure that no matter what happens, there is some money saved in that savings account.

When you go to open a savings account, first look into your own local area bank before you go online and look up other education accounts. Your own bank may have some great deals that will offer you the best benefits, since they may want you to stick with your own, usual bank. If you do not like the services they have to offer, you should then turn online and find out what banking services are available in your local area. Finding services that are in your local area will allow you to have a bank nearby.

If there are not any services available in your local area, don't stress about it. There are many great education banking systems online, where you can find great deals and benefits. Saving for your child's education or your own education can be extremely rewarding and can be a great experience if you choose to use the benefits that are available to you.

Should you choose to create an education savings account? Ultimately, that is up for you to decide. You should know, however, that there are many benefits for those who choose to use them. Don't miss out.

Answer 4

An educational savings account can be used to give parents and students an incentive to save up for educational expenses. They usually aren't taxed so long as the student is eligible.