Savings

Savings

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Statement Savings

The perfect non-transactional account to grow your “nest egg” and earn premium interest on your account funds.

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Minor’s Savings

This account is limited to individuals under the age of 18 with a demand deposit account being maintained by the parents or guardians.

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Coverdell Education Savings Account (CESA)

Discover the benefits of a Coverdell Education Savings Account. A CESA is a nondeductible account that features tax-free withdrawals for a very specific purpose – a child’s education.

Coverdell Education Savings Account

These questions and answers are intended to provide general information on federal tax laws governing Coverdell Education Savings Account (CESAs). No part is intended to provide legal advice. For specific information, you are encouraged to consult your tax or legal professional.


What is a Coverdell Education Savings Account (CESA)?

The Coverdell Education Savings Account is a nondeductible account that features tax-free withdrawals for a very specific purpose – a child’s education expenses. At first glance, a CESA may look similar to Traditional or Roth IRAs. Higher education distributions are also permitted from these accounts, but while qualified higher education distributions from a Traditional or Roth IRA are penalty tax free, and Roth IRA distributions may be free from federal income tax, the same distributions from a CESA are penalty free and federal income tax free. Consult your tax or legal professional for further information regarding state or local income taxes.


Who can contribute to a CESA?

You are eligible to contribute if your modified adjusted gross income (MAGI) does not exceed certain limits. Refer to the IRS website or your tax professional for limits. There are no compensation requirements or age restrictions for contributors. They do not even need to be related to the child they are contributing for. Contributors can even be nonindividuals like corporations or tax exempt organizations. These entities have no MAGI restrictions.


How much can I contribute?

The total aggregate contribution into one or more CESAs on behalf of any child is $2,000 per year. As a contributor, your allowable contribution depends on your MAGI. Refer to the IRS website or your tax professional for these limits.


How does the law define a “child”?

A child is defined as a person who is younger than age 18. A child’s eligibility for CESA contributions ends after the date he/she attains the age 18. Children with special needs are not subject to this restriction.


What if I want to save for more than one child?

You may contribute your maximum allowable amount into separate CESAs for as many children as desired.


Who has control of the assets?

Each CESA will have a responsible individual, usually the child’s parent or legal guardian. That individual has control of the assets until the child reaches the age of majority, and in some cases, even after that date.


What are qualified education expenses?

Higher Education – Tuition, fees, books, supplies, and equipment required for the enrollment or attendance at an eligible higher education institution are qualified expenses. A higher eligible education institution is an area vocational school, college, or university.
Elementary and Secondary Education – This includes kindergarten through grade 12 at a public, private, or religious school as determined under state law. Like higher education, tuition, fees, books supplies, equipment, and room and board are qualified expenses. Unique to elementary and secondary expenses are uniforms, transportation, and computer technology, equipment, or internet access and related services if used during any of the designated beneficiary’s school years.
Expenses and corresponding distributions must occur during the same year. If distributions exceed qualified expenses, the additional amount withdrawn is subject to tax and penalty.


Are distributions required?

The balance must be withdrawn within 30 days after the designated beneficiary’s death or his/her 30th birthday, whichever is earlier. The age 30 requirement does not apply to special needs individuals.