Educational Savings Accounts (ESA)

Parents helping their daughter saving with coin bank

Start saving with a Coverdell Education Savings Account when your child is young and you could potentially pay college tuition tax-free.

ESAs can be used for elementary, secondary, and higher education expenses. Anyone can make contributions for your child until his/her 18th birthday. ESA contributions are not tax-deductible, but the earnings grow tax-deferred.

ESA products offer higher dividends for larger deposits, no maintenance or administration fees, and retirement accounts insurance protection is separate and apart from insurance coverage of other credit union accounts.

To get started or for assistance, talk to a VyStar Representative today. Call 904-777-6000, 800-445-6289 or stop by any VyStar branch.

Educational Savings Account FAQs

What is a Coverdell education savings account?

An ESA is a savings arrangement in which contributions are invested for the purpose of funding a student’s education. ESA contributions are not tax-deductible, but they may earn interest tax-deferred until distributed. The child will not owe tax on any distribution from the account if it is equal to or less than the child’s qualified education expenses at an eligible educational institution for the year. Amounts distributed from an ESA that exceed the child’s qualified education expenses may be subject to income tax and to an additional 10 percent penalty tax. If the child does not need the money for education expenses, the assets may be rolled over or transferred to a qualified family member’s ESA or to a qualified tuition program (QTP).

Who is a designated beneficiary?

The designated beneficiary of an ESA is the person on whose behalf the ESA has been established. The designated beneficiary must be under the age of 18 to receive contributions to the ESA, unless he/she qualifies as a special needs beneficiary.

What is the contribution limit?

Eligible taxpayers may deposit up to $2,000 per year into an ESA for a child up to their 18th birthday. Parents, grandparents, other family members, friends and even the designated beneficiary (child) may contribute to an ESA for the same child, but the total contributions for a child for a taxable year cannot exceed $2,000. Eligible taxpayers may contribute up to $2,000 for multiple children in a year.

Who can contribute to an ESA?

Almost anyone can contribute to an ESA.

Individuals of any age
Individuals without earned income
Individuals with modified adjusted gross income (MAGI) within the applicable limits for their tax filing status

There are two key limitations.

Each child can receive up to the maximum contribution amount allowed per year ($2,000 per year) from all sources. It does not matter if this is done in a single account or in multiple accounts designed to benefit the same child.

Contributors may be limited in how much they contribute if their MAGI exceeds $95,000 (for single filers) or $190,000 (for married tax filers). Above these income levels, the ability to contribute is phased out. An individual may not make an ESA contribution if the MAGI exceeds $110,000 for single tax filers or $220,000 for married tax filers.

What is a qualified education expense?

A qualified education expense is one that is required for the enrollment or attendance of your child at an eligible educational institution.
These expenses include the following.

Can I roll over other assets into an ESA?

Under the Heroes Earnings Assistance and Relief Tax (HEART) Act of 2008, individuals who receive military death gratuity payment or Servicemembers’ Group Life Insurance payments may roll over such amounts to an ESA (or a Roth IRA) without taxation. Individuals must roll over the payments within one year of receipt.

Am I allowed to change the beneficiary?

The responsible individual may change the designated beneficiary. Someone may wish to change the beneficiary if the current beneficiary has completed his/her education and there still are assets remaining in the account. The only requirement is that the new beneficiary must be a qualified family member.

Who is a qualified family member?

Qualified family members include a designated beneficiary's:

Child or descendent of child, stepchild or eligible foster child
Brother, sister, stepbrother or stepsister
Aunt or uncle
Niece or nephew
Parent, stepparent or in-law (son, daughter, brother, sister, father, mother)
Spouse of any of the individuals named above
First cousin

Even with this extended range of family members, contributions only can be made for those under the age of 18.

What is the contribution deadline?

ESA contributions must be made by the due date for filing the federal return for each taxable year, not including extensions (i.e., April 15). When this date occurs on a Saturday, Sunday, or a legal holiday, you have until the following business day to make a contribution.