Fairfax, VA (Law Firm Newswire) May 30, 2017 – The ability to pay for a child’s or grandchild’s education is among the most important financial objectives parents and their families have. While some parents begin planning for their children’s education with kindergarten at a private school, others may only be able to pay their children’s college expenses.
The first step toward paying for a child's education is to become informed about the various plans to save and methods of making the payments. Some plans have extra tax benefits for parents, grandparents or other people who may be interested in providing financial support.
Coverdell ESA accounts are the sole savings vehicle that provides additional tax benefits to save and fund K-12 education expenses. They are mainly applied toward the education of students age 18 and younger. They are restricted to $2,000 per student annually regardless of who is the contributor or the number of accounts there could be for each student. A Coverdell ESA can not continue after the beneficiary attains age 30. An exception applies if the beneficiary has special needs.
Virginia estate planning attorney Lisa McDevitt states, “The gift tax consequences of contributing to a Coverdell ESA is $14,000 per person annually without incurring the federal gift tax.” “It is recommended that contributors consult an estate planning attorney to review any potential gift tax consequences of their gifts.”
However, the earnings in the Coverdell are free from tax when they are used to pay for qualified education expenses. And in the case of a special-needs child, costs incurred to provide services for them may also qualify. The Coverdell ESA accounts offer some flexibility in that if the funds are not exhausted when they are used for grades K-12, the remainder can be applied toward the payment of college expenses.
In order to be eligible to make contributions to the Coverdell ESA, the single filer must earn a modified adjusted gross income, or MAGI, of $110,000 or less. Joint filers must earn $220,000 or less. In the event the person’s income is too high to qualify, the person has the option of gifting the money to an individual whose income qualifies, and have them contribute the funds instead. That person could be the student.
Lisa Lane McDevitt
2155 Bonaventure Drive
Vienna, VA 22181