The holiday season is here and that means it’s time to find gifts for the whole family. Sure you can stick to the tried-and-true gift ideas like socks for dad or a tie for your uncle. But what if there are children in your family or extended family?
Kids want fun toys and games that they play with for a moment and then forget about by Boxing Day. And it IS fun to see their beaming faces when they unwrap those presents. But you know that these gifts are short-term delights that will pass soon enough, forgotten among the many other short-term gifts they get.
As an adult, you have a bigger picture in mind: You want to give gifts that have a deeper meaning and a longer-lasting impact.
That’s what makes Coverdell Education Savings Accounts (CESAs) such a perfect gift for your own children or for the other children in your extended family.
In a similar way to a Roth IRA that you might use for retirement, a CESA is a special savings account designed for education: You contribute after-tax dollars into the CESA, and you can contribute up to a certain limit every year, and that money grows and can be taken out tax-free for educational expenses by the beneficiary.
And, unlike a 529 plan (which can only be used for college-related expenses), the money in a CESA can be spent on a number of expenses for grade school. And with more and more educational costs being passed on to parents, this makes the CESA a perfect gift to give to a child that also helps parents to afford the rising costs of education.
Here are some good-to-know details about a CESA for 2015:
- CESAs can be set up and funded for anyone under the age of 18. This makes it a great gift for any child.
- The account can be used to fund certain expenses that arise from Kindergarten through twelfth grade, or college. If the child doesn’t attend college, they can withdraw the money. The account must be fully used up by the time the beneficiary reaches the age of 30, or they will incur penalties and taxes.
- CESAs now have an annual contribution limit of $2000. However, it’s important to note that this is a limit per CESA, not per contributor, so the account might be penalized if you and several other family members contribute a combined amount in excess of $2000 in a single year.
Account rules are more detailed, and they’re always changing. There are a number of other rules surrounding the CESA so you should consult with a CESA expert to help you understand whether this type of savings account is right for you.
For this reason, a CESA is the gift that keeps on giving! You get the confidence that your contribution, when wisely invested, will grow tax-free beyond your contribution amounts, plus you get the joy of knowing that you’ve made a huge difference in a child’s life by helping them fund one of the most important yet highest cost investments (education!) that they will incur in their lifetime.
If you have a child in your family or extended family, you can enjoy watching the delight in their eyes on December 25 as they tear the wrapping paper off a gift. And if you want to make a more significant impact on a child’s life, you can create a CESA for them and watch the delight in their eyes as they advance year after year in school and go on to create a meaningful life for themselves and for THEIR family because your gift of a CESA helped to pay for their education.
About the Author
Edwin Kelly is an author, speaker, investor and CEO of Specialized Trust Company. He is considered America’s leading expert on Self-Directed IRA’s. To learn more about getting started please call 800-529-3951 or click here.