Education Savings Account

If you come from a family that values education, college is a natural step in preparing a young person to train and exercise their God given talents. If you have a child, grandchild, niece or nephew you want to see succeed by earning their college degree, you should be aware of Educational Savings Accounts. These are designated accounts in which you can place money to assist in educational expenses that could also gain interest tax free. In fact, in some instances you could receive a tax deduction for your contributions. They are powerful financial vehicles that can ease what is often a stressful burden, college expenses!

The earlier you start saving for future college expenses, the easier it will be for the child to afford the education needed. One thing is for certain, you know by the age of the child when they will need the money. The downside is that most families with children are already operating on a tight budget with a mortgage, car payments, groceries, clothing, and all that goes along with raising a family. It is crucial to understand however, that the increase in the college tuition rates is now rising faster than most all other expenses, other than medical. There is no better time than the present to plan and start saving for their future.

There are two basic types of plans as described below, 529 College Savings Plans (529) and Coverdell Educational Savings Account (ESA). 

529 College Savings Plans

• 529 College Savings plans are named after Section 529 of the Internal Revenue Code.  
• Every state has a 529 plan they have approved, and they are operated on a state by state basis.
• Typically, your state will team up with an insurance company or mutual fund company for the 529 investment aspect.
• Over half of the states provide a state tax benefit for in-state contributions, but not every state offers this benefit.
• Investments grow tax-free, and can be withdrawn tax-free for educational expenses such as college tuition, room and board, and required textbooks.
• Each state has established a minimum contribution. 
• You can, over time, invest up to $380,000 in some states. However, to avoid gift tax consequences, federal law allows single taxpayers to contribute up to $14,000 in one year, or make a lump-sum contribution of $70,000 to cover five years.  
• You can list multiple beneficiaries on the plan, change beneficiaries, and transfer it from generation to generation without penalty.

Coverdell ESA

• ESAs are covered by Section 530 of the Internal Revenue Code.

• ESAs are not state sponsored.

• ESAs can be used for college and "qualified" educational expenses for the designated beneficiary of an account. This can include tuition, fees, books, supplies and even equipment required for enrollment or attendance at a Title IV institution, as well as expenses for special needs services. They also can cover certain primary and secondary school expenses. 

• You have more freedom with your investment choices, and can choose from a wider range of stocks and bonds.  

• You are limited to an annual investment of $2,000.

• ESAs do not receive a state tax deduction.

• Investments grow tax-free, and can be withdrawn tax-free for "qualified" educational expenses.
• You can change beneficiaries on the plan if the new beneficiary meets age requirements. 

Everyone's financial and tax situation is different, and it is important that you research which plan is best for your family. For instance, if you are investing $150 each month you might pick an ESA, but if grandparents and other family members are also wanting to contribute, you might go with a 529 plan. Or perhaps even consider a hybrid approach, as you can have both a 529 and ESA at the same time. While there are many different options to consider, the most important thing is you start planning right away for the future education needs of the precious young people in your life. After all, should the Lord tarry, these individuals hold the future of our organization in their hands. Shouldn’t we be making every effort to ensure they are educated and equipped hands?

As another option to think about, our own United Pentecostal Church Loan Fund offers ESAs through our trusted partner and custodian, GoldStar Trust. If that is the best choice for you, you can visit our website at www.upciloanfund.org/ESA for more information and to sign up. If you feel a 529 plan is best way to go, there are many online resources available for research and selection, such as www.collegesavings.org.