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Coverdell Education Savings Accounts

Coverdell Education Savings Accounts CESA – What it is and how to earn.

Coverdell Education Savings Accounts, what is it and how to earn.

Saving for College sounds simple in theory, especially when you start early.  However, life happens while you are making other plans, as I have heard and experienced.  The reality is, college savings takes a back seat to other financial goals. 

Self-Directed IRA investors take control with retirement growth and savings. They can take control of college savings in a similar way.  A Self-Directed IRA with iPlanGroup is a powerful tool.  It comes with excellent service for you the investor, and it comes with ongoing investor education to increase your success.  So let’s talk about college savings and how you can exercise control.

Coverdell Education Savings Accounts, or CESAs, allow individuals to save for educational expenses.  This includes savings for children, grandchildren, nieces, and nephews. It’s a custodial account created for the purpose of paying qualified education expenses, for right now, or down the road.  Things like books, tuition, and other qualified elementary, secondary and higher education expenses.

Coverdell Education Savings Accounts (CESA) have an annual maximum contribution of $2,000.  It is not tax-deductible, however, all distributions are tax-free to the beneficiary of a Coverdell ESA, when a qualified education expense is paid. (See Topic NO. 310 at the IRS.gov website).  

Contributions are pretty powerful when they are met consistently and are combined with compound interest.  Self-Directed IRA investors know this, especially with a specialty account like a CESA.  For example, one investor took control for her children early.  After making contributions to her CESA accounts, with 2 of her children as beneficiaries to the 2 individual accounts, she leveraged them in a real estate investment.

Each account had had just shy of $3,000 each from annual contributions. A deal was found where each account held 5% of the investment, (titled in the CESA account, 5% each).  It was a mobile home park and the park had mineral rights, a boost to the profit!  At the completion of the investment, (purchase of the mobile home park, leasing of the mineral rights, a seller owner finance to the new buyer of the park, and retaining mineral right income for an additional 5 years after the sale), the CESA accounts had grown to over $29,000 each! 

This is a powerful way to take a small dollar account, grow it, and make the child an “investor” without the child having earned income. 

Contributions to Coverdell Education Savings Accounts can be made up until the child is 18 years of age, and the account lives for 30 years.  If the beneficiary is a special needs child, the account lives longer. You can make contributions to the CESA, self-direct the funds and benefit the child now, and in the future.  Consider a CESA account to leverage in alternative investments, like real estate, for a child you love. 

Schedule your Self-Directed IRA Strategy now to make college savings easier – no matter what life throws your way!