Planning For Your Child's Future: Are You Taking The Right Steps?

College... almost every parent wants his/her child to attend college, but very few are actually able to pay for it. With college costs rising everyday, it is difficult to plan for the costs of next year’s tuition, not to mention 18 years from now. But planning ahead is exactly what you should be doing to help pay for your child’s education. Today, there are many ways to finance your child’s college education, but the best way is to start an education fund early.

Coverdell Education Savings Account (ESA), formerly known as Education IRAs, is a way to secure your child’s financial future. An ESA is a fund started to help lower the cost of college by allowing you to put money away tax-free. ESAs can be started at any age and can be contributed to until the beneficiary (child) reaches the age of 18. Anyone can contribute to the account at any time during the year, but the total amount contributed to the account in one year may not exceed $2,000. All the money deposited in the account stays in the account until it is withdrawn tax-free for educational purposes. The money can be withdrawn until the beneficiary reaches the age of 30.

In addition to tax-free withdrawals, ESAs offer the benefit of tax-free growth, i.e. the entire time the money is growing taxes do not have to be paid on it. Also the money in the ESA can be “rolled over” or transferred into an educational account of an eligible family member tax-free. This is good in the event that the beneficiary finishes college but still has money in his/her account. If the beneficiary chooses to do so they can decide to transfer that money into the educational account of another family member. This transfer does not count towards the $2,000 contribution limit. If the beneficiary does not choose to transfer the extra money the money will remain in the account until the beneficiary reaches the age of 30, at which point the balance would be paid to them and would be subject to a 10% penalty tax. Also if the beneficiary wishes to withdraw the money for non-educational needs before they turn 30, the money would be considered taxable earnings and be subject to a 10% penalty tax in addition to being included in taxable income.

Along with college, ESAs can be used to pay for parochial school tuition. For example, if the ESA was started at a young age, the parents may use the generated earnings to help pay for the child to attend a private middle or high school instead of public high school. ESAs can be used to aid all aspects of education.

For more information call Geoff at: CALL 1(800) 462-8297