An Education Savings Account Can Change Your Child’s Life
There are many ways that a child can count on a secure education if there is sufficient forethought and pre-planning. Finding one of those ways that you can afford and that has some worthwhile benefits for you can make all the difference to your child’s life. Without some sort of savings plan, it can be extremely challenging to get the education that the child will need. There are several ways of going about this and one recommended method is an Education Savings Account.
This is an account that acts as an incentive, tax-wise, for those who want to save money for a child’s education and benefit while doing so. Regardless of who is investing in the recipient’s Education Savings Account, there is a limit on the amount that can be invested in one year. The limit is $2,000. However these contributions are not tax deductible but they do grow tax free and this can amount to a nice benefit for the recipient. The money can be withdrawn and used and there is no tax on that money so long as it is less than the education expenses.
The distributions are not taxable if the attendance is at a qualified educational institution. The range of eligible institutions is relatively broad and includes public, private or religious schools providing elementary or secondary education or colleges, universities, and vocational schools eligible for a Department of Education student aid program. If the distribution is more than the expenses, the excess is taxable with an extra 10% tax added on. If the recipient turns 30 before all Education Savings Account money is used, there is a window of 30 days for distributing what is left in the account. Otherwise, it will be taxed with the extra 10% tax added on. There is one other way to avoid being taxed on the remainder and that is to roll to money over to a new Education Savings Account for someone else.