Supporting the increased cost of education often becomes a tough job for parents and some even have to compromise with their desires for higher studies. Students who want to continue their course of education should apply for Federal Grants and Scholarships to get the necessary assistance. In addition to that saving for college should also play a part in helping to fund your child's education. The Coverdell Education Savings Account is a popular choice in this matter of many intelligent students and parents who want to save some money for funding education costs.
A Coverdell Education Savings Account or Coverdell ESA was designed to help students and parents save some money for meeting educational expenses. If you do not have a covered Education Savings Account, you can check out the details to get an idea of the benefits you can receive. Also note the clauses that are to be followed for becoming eligible to get the benefits.
How The Account Works?
This is one of the most important points to be noted, when you are planning to open a Coverdell Education Savings Account. Both parents and students can open this account and save money as per their financial ability. However, the deposit limit is restricted to $ 2000 per year for every beneficiary, irrespective of the number of accounts he or she holds. Also note that only children under the age of 18, with the exception of special needs students who can be of any age, are eligible for these accounts. The amount that is deposited in this account grows tax free but you must pay taxes on it when distributed if they are not used for qualifying education expenses.
The money saved in this account can be used for funding expenses in Elementary schools or secondary schools as well as in colleges, depending on the requirement.
Some Important Points To Note To Enjoy The Advantages of Coverdell ESA:
• The money that is deposited in this account will be eligible for tax free distribution only when it is use for funding education costs, like paying tuition fees, buying books or other items needed for studies. One can also use this money for paying the rent of boarding schools.
• The school or college where the students are enrolled should be recognized by the board of education. Any private school, public school and even religious schools offering education as per the state law are covered under Coverdell ESA.
• Students enrolled in voluntary schools, colleges and universities working under the Department of Education can enjoy the tax free distribution of the money deposited in the Coverdell ESA scheme.
• To enjoy the benefits of this saving plan, students should have all the supporting documents for providing their eligibility. Failure to do so will lead to taxable distribution of the money saved in this account.
What Happens When Distribution Is Not Restricted to Qualified Education Expenses?
In case the contributions of the money saved in the Coverdell ESA is not meant for funding qualified education expenses, the beneficiary will have to pay a tax of ten percent on the money. Yet, there are certain circumstances under which one can avoid a taxable distribution. The official website of the Coverdell ESA, http://www.irs.gov offers complete details of the account and one must visit the site to get a clear understanding of the terms and conditions or consult with a qualified accountant.