Set up an Education
Savings Account for your Child

An easy way to start saving for your child's college expenses is to set up a Coverdell education savings account (ESA). It was formerly known as Education IRA. In 2002 this Education IRA was renamed ESA. The contribution was increased from $500 to $2000 for each child per year.

To set up an ESA, the following requirements need to be followed:

• Contributions to the account are allowed from birth until the beneficiary is 18 years of age.
• Total contribution in one year cannot exceed $2000 per child.
• The account must be zero by the time the beneficiary is 30 years old.
• The contribution to the ESA is not deductible for tax purposes, but the interest earned for the money in the account is tax free.
• Adjusted income cannot be more than $190,000-220,000 for joint filers and $95,000-110,000 for single filers in order to make a $2000 contribution. Note: to get around this limitation, make a money gift to the child and then the child can make the contribution. Always check the current tax law.

Any financial institution, like a bank or mutual fund company can open an ESA account. Be sure that there is no maintenance fee charged or only a minimal fee charged for maintaining the savings account.




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