If you have kids, chances are you’ve thought about how to pay for college, even if that stage is down the line. Saving for college early is a great choice, and one can have valuable tax benefits.
If your modified adjusted gross income is under $110,000 (filing singly) or $220,000 (married, filing jointly), you are eligible to set up a Coverdell Educational Savings Account (ESA). With a Coverdell ESA, you can contribute up to $2,000 a year for a designated beneficiary under the age of 18. Then, when they need it for school, he or she can use the funds for eligible educational expenses.
While you can’t deduct the amount of your contribution on your taxes, the money can typically be disbursed tax-free when the beneficiary needs it to pay for college (or other education costs). Disbursements are tax-free as long as the amount disbursed does not exceed the cost of the beneficiary’s qualified education expenses. If more money is taken out than is needed to pay for school, that amount will be subject to taxes. Any money left in a Coverdell ESA has to be disbursed by the time the beneficiary reaches age 30.
Establishing a Coverdell ESA is a great way to set money aside for college a little at a time. When you start early, that earmarked savings can really add up through your contributions and interest!
For help understanding the rules surrounding ESAs and other tax-related education matters, call the team at Taxation Solutions, Inc. We’re here to provide tax assistance to parents and students in San Antonio so you can make the most of all the education tax breaks available. Contact us today to find out more!