Education Accounts
Investment options that can help you plan for your child's education funding.
Education or College Saving Plans
Educational Savings Plans are state-sponsored; tax-advantaged savings plans that can help families and individuals save for higher education expenses. These plans offer a number of benefits, including tax-deferred growth and federal income tax-free withdrawals when used for qualified education expenses. Earnings not used for qualified education purposes are subject to ordinary income tax and an additional 10% federal tax penalty.
In addition to the federal tax benefit, many states offer a state income tax deduction for contributions to their plans as well as state income tax-free withdrawals for qualified expenses. Plans are issued by state governments. Your state plan may offer tax advantages over those of another state. Plans are sold by offering statement. Carefully consider a plan's investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This and other information is contained in the offering statement available from your representative. Read the offering statement carefully before investing.
Coverdell ESA (Education Savings Account)
A Coverdell ESA is a trust or custodial account created or organized in the United States only for the purpose of paying the qualified education expenses of the designated beneficiary of the account. When the account is established, the designated beneficiary must be under age 18 or a special needs beneficiary. The Coverdell account can be used for grades K-12, as well as for college education and beyond (until your child is 30 years old). The money in a Coverdell account can be used for tuition to any private elementary, middle, or high school.
Coverdell ESAs are funded with after-tax money so contributions are not deductible, but investment earnings accrue tax-free and withdrawals for qualified education expenses are exempt from federal taxes, as long as withdrawn for qualified education expenses.