For Our Clients

Educational Resources

By Theresa Fry, Senior Vice President and Manager, IRA and Retirement Plans

Print This Post Print This Post

In the past, tax-advantaged ways to save for K-12 education expenses at public, private or religious schools were limited. One popular option, Coverdell Education Savings Accounts (ESAs), have been around since 1998, but limit contribution amounts to $2,000 a year for children under the age of 18, and are available only to those individuals with modified AGI below certain thresholds ($110,000 single, $220,000 joint). Distributions from Coverdell ESAs can be used for a variety of K-12 and college education expenses including tuition, fees, books and supplies, but must be used by the time the student (beneficiary) is age 30.

Another popular education savings option, the 529 college savings plan, has been available for tax-free distributions for college expenses since 2002, but did not provide tax-free benefits for elementary or secondary education expenses. 529 plans have a higher contribution limit than ESAs (currently $15,000 a year), are available to all individuals regardless of income, have no age limit for receiving or using the funds, and in some cases, the state that sponsors the plan provides a state tax deduction to the contributor.

Beginning in 2018, 529 savings plans can be used to make tax-free distributions in amounts up to $10,000 a year for K-12 tuition expenses at public, private or religious schools, in addition to being used for college. Because Coverdell ESAs and 529 Savings Plans have similar, but not identical tax benefits now, it’s a good time to review which type of education savings plan is right for you with your financial advisor and tax professional.

Benjamin F. Edwards & Co. does not provide tax advice, therefore it is also important to consult with your tax professional for additional guidance tailored to your specific situation.

January 9, 2018 |