A Coverdell Education Savings Account is a great way to start saving for your child's education expenses from K-12, college, and even other forms of higher education. You can open an account with your local credit union or another financial institution such as a bank.
Read on to find out everything you need to know about this convenient financial tool and to get complete answers to your question, “Where can you open a Coverdell Education Savings Account?”
WHAT IS A COVERDELL EDUCATION SAVINGS ACCOUNT?
This common type of education savings account (ESA) is also called an ESA IRA or Educational IRA. IRA stands for individual retirement account but when it comes to Coverdell Education Savings Accounts, you're saving for your child or beneficiary's education—not for your retirement.
HOW DOES AN ESA IRA WORK?
Here are the key facts about Coverdell Education Savings Accounts:
- You need to open an ESA IRA before your child turns 18.
- There are income limits on who can open an account.
- You can contribute up to $2,000 a year from post-tax earned income.
- Your other family members, and even your child, can contribute funds as long as the funds are from post-tax earned income.
- You can't contribute funds after the child turns the age of 18.
- Withdrawals can be made for qualified education expenses at any age before 30.
- All funds need to be used by the time the beneficiary turns 30 unless they have special needs or meet other exception criteria.
EDUCATIONAL IRA VS. OTHER IRAs
Here's what you need to know about the similarities and differences between IRAs:
- Like a Roth IRA, you need to contribute funds from post-tax earned income and these contributions to a Coverdell ESA aren't tax deductible.
- By comparison, contributions to a Traditional IRA are tax-deductible.
- There are annual contribution limits. For an ESA IRA, it's $2,000 a year. For other IRAs, it's generally $6,500 a year for single filers.
- You earn competitive rates on the funds in your ESA IRA account and, like other IRAs, your earnings can grow tax-free.
- Like a Roth IRA, you or your child can make tax-free withdrawals once you meet the withdrawal criteria.
- By comparison, Traditional IRAs are tax-deferred and you pay income tax on withdrawals.
WHY OPEN AN ESA IRA?
Getting a great education can be expensive, especially if your child chooses a top out-of-state college. Your child may qualify for scholarships or grants but, most of the time, you will need to cover at least some of your child's tuition and other educational expenses.
An ESA IRA lets you spread these future costs over many years and enjoy tax benefits. If you're organized, you can open a Coverdell ESA as soon as your child is born and then make contributions until they turn 18.
You can use the funds to pay for:
- College tuition and other forms of higher education such as vocational training
- K-12 tuition and expenses for elementary school through secondary school
- Room and board
- Books and supplies
- Computers and technology
- Tutoring
- Transportation
- Internet access
WHERE CAN YOU OPEN A COVERDELL EDUCATION SAVINGS ACCOUNT?
You can open an Educational IRA at your local credit union, a bank, a brokerage that lets you invest in stocks and bonds, or directly with a mutual fund company.
BENEFITS OF CHOOSING A CREDIT UNION INSTEAD OF A BANK
There are many good reasons to choose your local credit over other financial institutions when opening a Coverdell Education Savings Account.
- Better rates: Credit unions are not-for-profit so can pass revenue back to you through higher rates.
- Safe investment: You earn guaranteed interest instead of your funds being invested in the unpredictable stock market.
- Local experts: We know our community and how best to serve you and your family.
- Member services: You can enjoy a wide range of other benefits when you join your local credit union.
- Other financial products and services: You gain access to lower rates on loans, incur fewer fees, and can open any type of account you need from checking to savings.
HOW TO DETERMINE WHAT CREDIT UNION YOU CAN JOIN
Most credit unions were formed to serve a particular community, whether that's the employees of a specific company or people who live in a certain area. Over time, most credit unions have grown to include more people who live, work, or go to school near the original community base.
You can become a member of Wasatch Peaks Credit Union and open a Coverdell Education Savings Account if you meet any of these simple criteria:
- You live, work, worship, or attend school in Weber, Morgan, or Davis Counties in Utah.
- You are an immediate family member of an existing member-owner including a parent, child, brother, sister, spouse, or surviving spouse.
HOW TO OPEN A COVERDELL EDUCATION SAVINGS ACCOUNT
Opening an ESA IRA is simple. First, join your local credit union and open a share savings account so you're a member and part-owner. Then, you can open an ESA IRA for any child or beneficiary who is under the age of 18. Finally, you start contributing funds and earning interest.
DOCUMENTS YOU NEED TO OPEN AN ESA IRA
Here's what you need to have ready when you apply for your ESA IRA:
- Two forms of ID such as a driver's license and utility bill
- The child’s birth date.
- Your and the child’s child’s Social Security number
- The name, address, Social Security number, phone, & email of the responsible individual if it will be someone other than you.
- Phone number
- Proof of address
JOIN WASATCH PEAKS AND OPEN AN ESA IRA TODAY!
It's never too early to start saving for your child's educational future—so why not enjoy the benefits of joining your local credit union at the same time?
Wasatch Peaks Credit Union offers competitive rates on ESA IRAs so the money you’re investing in your child’s future goes further. Click below for full details!
