Page 52 - Book2E

Education is the best provision for old age.
—Aristotle
1 . Coverdell Education Savings Account (formerly known as Education IRA): A Coverdell ESA is an education fund that is a great way for parents, grandparents, and others to help meet the rising costs of a student’s education. You can set up an ESA for a desig- nated individual (beneficiary) who must be younger than 18 years old when the account is opened. There are exceptions to this for indi-
viduals with special needs. You will have control over the account only until the beneficiary reaches his or her 18th birth- day.
The maximum annual amount you can deposit in the account is $2,000. A nice feature of this account is that funds can be
used to pay qualified expenses not only for college and university, but also for elementary and secondary school. Qualified expenses include activity fees, textbooks, supplies, equipment, and some boarding fees. A drawback is that if the beneficiary must apply for additional financial aid to pay for college, the funds must be declared as an asset.
While there is no tax deduction for amounts contributed to an ESA, the earnings are tax free and no taxes are due upon withdrawal if the guidelines are met. The funds must be withdrawn by 30 days follow- ing the beneficiary’s 30th birthday or the fund can be designated to a different beneficiary within the same family.
Benefits:
• Qualifies as a tax shelter for parents for capital gains.
• Up to $2,000 per child per year can be deposited, depending on your income.
• Withdrawals are penalty free if they are for qualified education expenses.
• Withdrawals are taxed at the beneficiary’s tax rate rather than at the parents’ rate.
There's More to an Education