There are a few different savings vehicles that can

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There are a few different savings vehicles that can be used to save for education-specific expenses. Click through the tabs below to learn more about each option. Coverdell ESA
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The first is a Coverdell Education Savings Account (Coverdell ESA) . Before 2001, this account was once called an Education IRA. A Coverdell ESA can be opened for anyone under age 18, and it requires income to be below certain thresholds (Links to an external site.)Links to an external site. in order to make a contribution of up to $2,000. Coverdell contributions are treated like a Roth IRA...They offer an after-tax contribution and tax-deferred growth that becomes tax-free if the withdrawals are used for approved education expenses. Examples of qualifying education expenses include tuition for college or private, pre-college schools (high school, middle school, or elementary school). Room & board, books, computers, and transportation costs are also eligible. Chances are that someone going to one of these institutions will spend way more than $2,000 per year, but they can use this tax-deductible tool to help defray some of the costs or to start saving for a private high school when the child is very young. A Coverdell ESA does hold investment risk because contributed money can be deposited into a variety of investment options (primarily mutual funds). Any money left in a Coverdell ESA must be used by the time the beneficiary (student) turns age 30 or it should be rolled over to another beneficiary (sibling or cousin perhaps). 529 Savings Plan The biggest competitor for a Coverdell is a 529 Savings Plan. From a taxation perspective, they operate in much the same way as a Coverdell. They offer after-tax contributions and tax-deferred growth that becomes tax-free if the withdrawals are used for approved education expenses. Some states offer some tax relief at the state-level for 529 contributions. A contribution to a 529 plan is viewed as a gift and are therefore subject to annual gifting limits. For 2018, the gift limit is $15,000 per person. You can monitor the annual gift limits here (Links to an external site.)Links to an external site. . A person could receive contributions of up to this limit each year (not the $2,000 limit of the Coverdell) or they could receive 5- year's worth all at once and then nothing for the following five years. This would mean a one-time contribution of $75,000 (5 x $15,000) in 2018 and then no further contributions allowed for 5 years without reducing the taxpayers lifetime gift exclusion amount ( follow this link if you want deeper information on this topic (Links to an external site.)Links to an external site. ). The plan does bear investment risk (usually invested in mutual funds) and permits payments for tuition, room & board, books, and other supplies required for completion of a degree. Any funds not used by a beneficiary (student) can either be rolled over to another beneficiary (sibling) or be distributed out of the fund, but, distributions for non-education expenses will incur a 10% penalty and taxation. Technically, a 529 plan is the asset of the parent or grandparent who funds it.
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