Parents hope for their children’s lives to be better than their own. They want to ensure their children have opportunities they may not have had. One way parents can help prepare for their children’s future is by opening a children’s savings account (CSA). But what are children’s savings accounts and how can they benefit your child?
College educations cost anywhere from $30,000 and more for a Bachelor of Arts degree depending upon the course taken. With expenditures this high, beginning to save as soon as possible is a wise financial move.
In the past, the Education Individual Retirement Account (Educational IRA) was limited to having $500 added to the account each year. When the accounts were renamed in 2001 to the Coverdell Education Savings Account, the contribution limit was raised to $2,000 per year.
Any parent, grandparent, or other adult can set up the Coverdell Education Savings Account and designate a child seventeen or younger as the beneficiary. Contributions are added each year. These contributions are not tax-deductible; however, as long as withdrawals are made to pay eligible school charges (tuition, books, etc.) they can be withdrawn without being taxed.
What are some of the other benefits of starting a children’s savings account for a child you know? Here are a few of them:
* You can add money to the CSA and receive credit for doing so up to the date you file income taxes in April.
* Instead of having a cut off of the child’s eighteenth birthday, contributions for children with special needs can be made past their eighteenth birthday.
* Any adult can add money to a child’s account as long as the total contributions for the year do not exceed $2,000. If money over $2,000 is placed into the account, there is a six percent excess contribution tax charged even if the funds come from different people.
* You can start a Coverdell account and a state-sponsored college tuition program account for the same child.
* Coverdell and other children’s savings accounts can be opened at any financial institution that offers IRA accounts. The contributions can also be made in any of the following – stocks, bonds, mutual funds, and certificates of deposit – as long as the contribution does not exceed $2,000 per year.
To learn more about the financial benefits of starting this type of children’s savings account, talk with a financial counselor. They will be able to give you more information and answer any questions you might have.
A college education is a dream many parents have for their children. However, the cost of that education is exorbitant for many families. It’s possible to begin to save now for their education as long as they are younger than seventeen. Learn all you can about what children’s savings accounts are and how saving now can help your child with their educational future.
