Education accounts help adults save for the future educational expenses of children in their care. Two types offered by Scottrade are Coverdell Education Savings Accounts (ESAs) and custodial accounts.
Coverdell Education Savings (ESA)
Coverdell Education Savings Accounts (ESAs) provide investors with a tax-advantaged choice for saving for a child's higher education expenses. Formerly known as an Education IRA, the Coverdell ESA allows investors to choose any combination of stocks, mutual funds and bonds to achieve their investment goals.
ESAs have no fees and no minimum investment or balance. Withdrawals are tax-free for qualified educational expenses, and the investor, also known as the responsible adult, may contribute up to $2,000 per year per child until the child turns 18, subject to income limits.
Custodial Account
Custodial accounts allow a parent or legal custodian to set up and manage an account for the benefit of a minor child. Depending on your state, the account can be established either under the Uniform Gifts to Minors Act or the Uniform Transfers to Minors Act. The custodian controls the account until the minor reaches the age of 18 or 25, depending on the age of termination for your state.
There are no contribution or income limitations with custodial accounts, and withdrawals can be used for any purpose without penalty. Custodial accounts also have tax advantages because up to $750 in earnings are tax-free, and the account qualifies for the annual $12,000 federal gift tax exclusion.
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