We believe it is never too early to start saving for a child’s education in a tax, especially when you take into consideration tuition increases. The fact is, earning a college degree is costly, but it’s also valuable to have in today’s world. Helping your child, or a child you know, afford their college education and all the costs associated, is imperative and the process can be easy to begin.
If you’re interested in opening an account, Commonwealth Funds is your primary resource. We are a reliable source that can help you determine the kind of account that would best meet your needs. We also are dedicated to helping you manage a minor’s investment account so you can bring it home for them.
Coverdell Education Savings Account (ESA)
When you invest in an ESA, potential earnings grow with no current income tax. Even better, withdrawals are free from federal taxes so long as you use the money to pay for qualified education expenses, which typically include tuition, books, supplies, uniforms, room and board, computer equipment and internet service. Tax-free withdrawals apply not only to college expenses, but also to elementary and secondary education expenses for public, private, or parochial schools.
Keep in mind, there’s an income eligibility limit applied to the person who contributes to the account that currently limits contributions to $2,000 per year, per child.
Uniform Gift to Minor Act (UGMA) & Uniform Transfers to Minors Act (UTMA)
These custodial accounts are set up by any adult and managed on behalf of a minor. UGMA allows bank deposits and mutual funds to be gifted or transferred to a minor and UTMA permits relatives and friends to gift or transfer any type of asset to a minor.
The accounts are typically turned over to the beneficiary’s control at the age of 18 to 21 (depending on the state in which the account was opened) and the beneficiary can use the funds in any way he or she chooses. Prior to the turnover date, the funds must be used for the minor’s benefit.
Note: Consult your tax advisor for more information.