Coverdell Education Savings Account

Coverdell Education Savings Account (ESA) - formerly known as Education IRA, is a smart way to save for your child's college education.

Contributions are not tax-deductible, but withdrawals are tax-free if used for tuition, fees, books, computer equipment and other qualified higher-education expenses.

Open your Coverdell Education Savings Account with Accentra Credit Union with a Savings or Certificate Account and start saving now for your kids and grandchildren's education.

• Certificate - A deposit of $500 will get you started with this CD, earning a fixed interest rate of return for a fixed period of time. Interest earnings are tax-free, but keep in mind that penalties apply for most early withdrawals.
   
• Savings Account - Interest earnings are tax-free with this account, offering a variable interest rate and the ability to make deposits or withdrawals at any time without penalty from Accentra Credit Union (IRS penalties apply for most early withdrawals). All it takes is $5.00 to open the account.

Whatever your needs and goals are, check with your tax adviser or financial planner to make sure you're making the most of your investment.

Benefits
ESAs allow eligible parents, family members, and students to contribute up to $2,000 per year (until the child turns age 18) toward qualified education expenses at any college, university, vocational, elementary, or secondary school.

With an ESA, participants can benefit from tax-deferred growth and tax-free withdrawals when the proceeds are used for qualified education expenses such as tuition, fees, books, supplies, equipment and in some cases, room and board and computers.

Another benefit is the discretion the account holder has over the investment of their funds, which will be allocated in stocks, bonds, and mutual funds or fixed rate term certificates of deposits.

Contributions can be made until the beneficiary reaches 18. And, if funds are not used for one child, they can be transferred to another child in the family.

Contributions to ESAs for a particular year can be made until the tax return due date (generally April 15).

Restrictions on Participation
ESAs have provisions that may prevent you from participating. For married taxpayers, the adjusted gross income phase-out range for contributions is up to $220,000. For single taxpayers, the phase-out range is up to $110,000.

The $2,000 yearly maximum contribution applies to the account holder and beneficiary. The beneficiary can only receive a total contribution of $2,000 in any given year, regardless of the number of contributors to that account. Furthermore, the account holder can make a maximum contribution of $2,000 per beneficiary.

If there is a balance in the ESA when the beneficiary reaches age 30, it must be distributed within 30 days. A portion representing earnings on the account will be taxable and subject to the additional 10% tax. The beneficiary may avoid these taxes by rolling over the full balance to another Coverdell ESA for another family member.

It's Never too Early to Start Saving
When your children are young, it's hard to imagine them strolling a college campus or cramming for final exams. But it's never too early to begin saving-especially when your funds could be growing tax-free in a Coverdell ESA.

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