The Coverdell Education Savings Account, or CESA, is a vehicle that allows individuals to save money
for a child's education on a tax-favored basis. Distributions used to pay for certain
education expenses are federal income tax free and IRS penalty free.
The CESA is a great way to save for a child's education. Deposit up
to $2,000 per child/per year.
The child must be under age 18 and qualified distribution must be completed
by age 30, (special age waivers for children with special needs). Dividends
are normally tax-free! Contributions are not tax exempt, but they are
not taxed again at withdrawal.
Qualified Withdrawals
Qualified higher education expenses including: tuition, fees, books,
supplies, equipment required for the enrollment of a child at an eligible
education institution. Reasonable room and board expenses are included
as a qualified higher education expense for students registered at least
half time.
Qualified elementary and secondary education expenses including: tuition,
fees, academic tutoring, special need services in the case of a special
needs child, books, supplies, room and board, uniforms, transportation,
computer technology, equipment, hardware, and internet access as long
as such expenses and for the benefit of the designated beneficiary (child)
and the beneficiary's family and are predominantly educational in nature.
Distributions for qualified education expenses are tax and penalty free.
There are penalties for non-qualified withdrawals. However, distributions
due to the designated beneficiary's death, disability, or receipt of
a scholarship are subject to tax on the earnings (but no penalty). A
distribution taken for any other reason is subject to tax and an IRS
10 percent penalty on the earnings withdrawn. Also if the child you
are saving for decides not to pursue higher education, you may rollover
the account to another member of the same family.
It's Easier to Build Your Coverdell Education Savings Account at the
Credit Union
Via Payroll Deduction or Direct Deposit, you can have part of every
paycheck transferred automatically into your child's CESA. With systematic
deposits, your CESA can't help but grow.
For a Personal Consultation About Regular IRAs, Roth IRAs, or CESAs
Contact
the USU Charter Credit Union.
