Investors enjoy a wide variety of tax-advantaged savings options when planning for their futures. IRAs and 401Ks help save for overall retirement costs, Health Savings Accounts target future health expenses, and Coverdell Education Savings Accounts (ESAs) focus on education costs of children and dependents.
Ready to open a Coverdell ESA? Click here to access our ESA Application Packet!
Unlike other tax-advantaged plans, a Coverdell ESA is intended to cover a beneficiary’s costs, in this case educational expenses. Typically your child or other dependent, the money your ESA earns will eventually be “spent” by your beneficiary on school and related costs. Allowable expenses include tuition (for college but also primary and secondary schools), books, equipment, and more.
Coverdell ESA Contributions
Any adult may contribute to a Coverdell ESA, not just the account holder. However, total contributions from all sources for a beneficiary cannot exceed $2,000 annually. An ESA distinguishes itself from a 529 Plan by allowing investments in alternatives like real estate, private loans, and precious metals. Initiating your ESA strategy while your child/beneficiary is young can allow you to make the most of your investments and prepare for future school costs, which historically have grown greater than overall inflation.
Coverdell ESA Distributions
Withdrawals from an ESA are 100% tax free, regardless of your or your child’s age, if the distributed balance covers qualified educational expenses.
Other Key Considerations
You can make contributions to a Coverdell ESA until the beneficiary reaches age 18. You are not, however, obligated to use or distribute the money at that time. Once the beneficiary reaches age 30, the account funds must be distributed or rolled into another beneficiary’s account.
Reach Out with Your Questions
Can you save for your children’s education by investing in real estate or other alternative assets? The answer is Yes!
Give us a call at 877-742-1270 or send us a message through the Client Portal to learn more.