Coverdell Education Savings Accounts
New Tax Laws Benefits
The Coverdell Education Savings Accounts (CESA) have historically been restricted by the relatively low annual contribution limit of $2,000. You do not get a tax deduction when you put the money into the account, but the tax-free earnings potential is tremendous, and the withdrawals are tax-free, too - as long as they are used for education.
Take a look at the earnings potential: if you contribute the maximum for a newborn child every year until the child is 18 and you earn an average investment rate of 6%, the account will grow to about $70,000.
Another benefit to the new law is that you can now use tax-free withdrawals from the CESA to pay for private elementary and high school expenses. If pre-college tuition bills are in your future, an CESA is an excellent place to save for them. And if the original beneficiary does not go to college, the CESA can be transferred to any member of your family — though all beneficiaries must be under the age of 30.
The new law also allows you to take a Hope or Lifetime Learning tax credit in the same year you make a withdrawal from a CESA.
You can contribute fully to a CESA only if your adjusted gross income is less than $95,000 on a single return or $190,000 on a joint return. However, anyone can contribute to the CESA for your child (such as a grandparent or friend). The cap is $2,000 per year during any one year, regardless how many donors chip in. In the event you use the money for a non-qualified expense, you'll pay the IRS a 10% earnings penalty.
Open A CESA Today!
Please contact Lisa Nickell at 800-543-2283 (ext. 215) to open a CESA.