Coverdell Education Savings Account

Investing in Your
Child's Future

With the ever increasing costs of higher education, it is important to plan ahead and start saving early. Whether your child is one week old or ten years old, a CESA - Coverdell Education Savings Account -  is a great way to start saving for your child’s education. It is in investment in their future.

What is a CESA?
The Coverdell Education Savings Account (CESA)  a non-deductible account that features tax-free withdrawals for a child’s educational expenses.

Why would I want to start a CESA?
By investing in a CESA, you will be investing in your child’s financial future. You, your family, or your friends - anyone, can contribute to your child’s CESA account for a total of up to $2,000 annually. Although the contributions are not tax deductible at the time the contribution is made, the tax-free earnings potential is tremendous. Withdrawals are tax-free too, as long as they are used for educational expenses. If you were to contribute the maximum of $2,000 for your newborn child every year until he turned 18, and you earn an average investment rate of 3%, the account will grow to approximately $48,000.

Contributions
You can contribute fully to a CESA only if your adjusted gross income is less than $95,000 on a single return or $190,000 on a joint return. However, anyone can contribute to the CESA for your child (such as a grandparent or friend). The cap is $2,000 per year during any one year, regardless of how many donors make contributions. In the event you use the money for a non-qualified expense, you'll pay the IRS a 10% earnings penalty.

What are qualified educational expenses?
Tuition, fees, books, supplies, and equipment required for the enrollment or attendance at an eligible higher education institution are considered qualified expenses. This includes virtually all accredited public, nonprofit, and proprietary post-secondary institutions.

Expenses for elementary and secondary education are also qualified (kindergarten through grade 12) at public, private, or religious schools as determined by state law. As with higher education, tuition, fees, books and supplies, equipment and room and board are also qualified expenses.

Do I pay taxes on distributions?
No, and neither does the child, provided the assets are used for qualified educational expenses. You cannot deduct the contributions that you make, taxes do not apply to the earnings portion when the assets are withdrawn for educational expenses.

How do I start a CESA for my child?
Planning is the key to reaching your financial goals for your child’s educational future. Consult a Wolverine Bank representative today by calling (989)631-4280 and they will be happy to  help you put together an educational funding strategy that will help you fulfill the dreams you have for your child.

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