Education savings accounts offer tax-advantaged savings for parents to use for their child’s education. These plans are commonly called Coverdell Education Savings Accounts, and funds can be used to pay for qualified educational expenses such as tuition, books, uniforms, etc.
To qualify, you do not need earned income. However, the beneficiary of the account must either be under the age of 18 or an individual with special needs. You must also open an ESA with a cash deposit.
- You do not need to make yearly contributions.
- Contributions are not tax-deductible, but earnings do grow on a tax-free basis as long as the earnings are less than the account holder’s annual adjusted, qualified expenses for educational purposes.
- Exceptions are available for individuals with special needs.
A self-directed education savings account provides account owners the freedom and flexibility to acquire alternative investments to build additional capital towards education. If you have an existing ESA, those funds can be transferred or rolled over into a self-directed plan.
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