Education Savings Accounts (ESAs)
If college is still some years in the future, you may consider putting your savings in an Education Savings Account (ESA), also called a Coverdell Education Savings Account. You invest post-tax income and may take tax-free withdrawals of any earnings to pay qualified educational expenses.
You open an ESA with a bank, credit union, or other financial services company that offers these accounts. You choose the investments for the account based on what's available through the account provider. If you're choosing investments that carry risk, as most investments do, you'll want to consider your risk tolerance.
Qualifying to ContributeThere are income limits that restrict who may contribute to an ESA. You may not qualify to contribute if your modified adjusted gross income (MAGI) is higher than the caps that apply.
For more about ESAs, visit www.irs.gov/uac/Form-5498-ESA,-Coverdell-ESA-Contribution-Information, or www.savingforcollege.com/coverdell_esas
A beneficiary must use the assets in an ESA by age 30 or the account must be transferred to a different beneficiary in the same extended family.