The Coverdell Education IRA is an individual retirement account that has nothing to do with retirement. Even though its name includes the initial IRA, its not an IRA. Instead, it's a kind of savings account that offers tax benefits if you set aside money to help pay for a child's (grandchild's) college education.

Coverdell IRA's can be an important tool in providing savings for pre-college needs. Coverdell IRA replaced the old Education IRA (ESA) in a much improved form. Currently the Coverdell IRA allows distributions for school expenses that include kindergarten through grade 12 (or all pre-college) expenses. This can even include a computer for your child. The amount that can be contributed has increased from $500 per child to $2,000 per child. For those with young children anticipating enrollment in a private school, the Coverdell IRA may prove to be an effective means of paying for pre-college costs.

When the time is right, you withdraw the money to help pay for a child's or grandchild, college expenses. You don't get an income tax deduction for the amount you contribute, but the earnings inside the account grow each year without being taxed. And if the money is used for college education expenses, the withdrawals are entirely free of tax and penalty.

FAQ's:

• Q: How much can I contribute to a Coverdell IRA each year?
  • A: $2,000 per child
• Q: When may my child use the money for education expenses?
  • A: Funds withdrawn for educational expenses may be used as early as kindergarten with no penalty  
• Q: What age does the child need to be to start contributions?
  • A: As soon as the child is issued a social security number.

BENEFIT's:

• Great Coverdell Certificate of Deposit rates
• Full online service with incredible member support.
• It provides flexible investment options. You may open an education IRA with any bank, brokerage, mutual fund, or insurance company that offers education IRAs, and money can be invested in just about anything.
• You may contribute on behalf of any child; the beneficiary need not be related to you.
• The account grows on a tax-deferred basis, so earnings aren't taxed each year.
• The account may be transferred, or rolled over, from one trustee to another, so you're not locked into your original trustee or custodian.
• Withdrawals are entirely tax-free if used to pay for the students tuition, fees, and related expenses.
• Families with more than one child may set up and contribute to an education IRA for each child.  If the account still has a balance after the student graduates, the money may be transferred, without tax consequence, to another family members education IRA.*

*Please consult a tax advisor for any tax questions or advise. PTFCU can not guarantee any certain tax breaks or liabilities.