Investment Services
Coverdell Educational Savings Agreement (ESA)
In July 2001, the "Education IRA" was renamed the "Coverdell Education Savings Account." Much more has changed than just the name.
The advantages of an Educational IRA are that you can invest after-tax dollars that grow without annual tax, which can help accelerate the appreciation of your original investment. Also, the funds are not taxed when they're withdrawn for qualified purposes, so the appreciation is tax-free.
Significant changes have taken place in two areas: 1) how much you can contribute and 2) for what the funds can be withdrawn.
ESA Resources and Links:
FREQUENTLY ASKED QUESTIONS
How much can you contribute? Who is eligible? What's the deadline?
Prior to January 1, 2002, the maximum amount that could be contributed to the Education IRA was $500 per year. Years of savings at this rate might cover the first semester in some colleges. The new maximum is $2,000 per year. This makes the Coverdell Education Saving Account a much more powerful tool for educational savings and financial planning.
Who can contribute is based on income, and the changes are for the better. More families can take advantage, especially those with higher combined incomes. The phase-out range for single-income families remains the same—$95,000 to $110,000. The phase-out range for married taxpayers filing a joint return is $190,000 to $200,000 of modified adjusted gross income.
The deadline has also changed to become more practical from a tax-planning viewpoint.
More students qualify as recipients or beneficiaries. Funds withdrawn are exempt from federal income tax.
Types of “qualified education expenses” for Coverdell Education Saving Account withdrawals have increased to include costly elementary and secondary education expenses for students from kindergarten through Grade 12. These qualified expenses include tuition, tutoring, books, supplies, room and board, uniforms, transportation, computer technology and equipment. Families who pay out-of-pocket for such costs can withdraw funds from their Coverdell Education IRA to cover them.
The benefits have also been enlarged to include students who require more time to complete secondary school because of a physical, mental, or emotional condition. Up to now, the age limit has been 18 for all secondary school students. The limit has been extended for special-needs students.
Major changes in the overall approach.
Kindergarden through College expenses for tuition, room and board, books, supplies, and fees now qualify for withdrawals from Coverdell Education IRAs. Again, the original funds are available, as well as any appreciation, without federal income tax to the beneficiary (student).
More reason than ever to consider investing.
Rising college costs were rapidly outstripping the value of the ESA when the maximum annual contribution was $500. At its $2,000 per year maximum, the Coverdell Education ESA offers a major opportunity to prepare for upcoming college expenses. Contributions to all Coverdell ESAs set up for the benefit of any one designated beneficiary cannot be more than $2,000 for 2004. This includes contributions (other than rollovers) to all the beneficiary's Coverdell ESAs from all sources. Also, it permits qualified withdrawals sheltered from taxation of either parents or students. For more information on Coverdell Educational Savings Accounts, contact an ADF Investment Services Representative.
Disclaimer:
Participation in the plan does not guarantee that contributions and the investment return on contributions, if any, will be adequate to cover future tuition and other education expenses or that a beneficiary will be admitted to or permitted to continue to attend an institution of higher education. Contributors to the program assume all investment risk, including liability for penalties such as those levied for non-educational withdrawals. Consider the place of various education planning vehicles in the context of the overall financial plan with the appropriate professional (e.g. tax advisor, etc.). For more complete information, including a establishment packet, contact ADF.
- All administration fees are paid by ADF when using Lincoln Trust Company as custodian and holding only ADF-sponsored assets.
- The total of all contributions to all Coverdell ESAs set up for the benefit of any one designated beneficiary cannot be more than $2,000 for 2004. This includes contributions (other than rollovers) to all the beneficiary's Coverdell ESAs from all sources.
- The funds are on deposit with ADF, Inc. in a Retirement Agreement Account. If you are interested in receiving an establishment kit, please contact ADF for the application forms and offering circular.
College Saving Tools
IRS Forms and Publications regarding the Coverdell ESA
A Coverdell ESA is a trust or custodial account created or organized in the United States only for the purpose of paying the qualified education expenses of the designated beneficiary of the account.
Alliance Colleges
Alliance Theological Seminary (ATS) is an evangelical seminary committed to preparing servants of Jesus Christ through a variety of educational, hands-on ministry and personal formation experiences. Our main campus is located near New York City in Nyack, NY. We also have extension campuses in Manhattan, Western Pennsylvania, and Puerto Rico.
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