Planning Your Education
Education Savings Account
An Education Savings Account is a custodial account in which the child owns the money but a parent or legal guardian manages the account. The account is exclusively for the purpose of paying the child's education expenses. The child will not owe tax on any distributions for qualified education expenses. It's important to note, however, that assets accumulated in an Education Savings Account may affect a student's ability to qualify for financial aid or limit the availability of certain tax credits. It is a good idea to talk to a tax adviser before establishing one of these accounts.
Eligibility
A parent, relative or friend on behalf of any child under the age of 18 can establish an account with a Social Security Number. However, the responsible individual listed on the account must be the parent or legal guardian.
Contribution Limits
The maximum annual contribution is $2,000 per child, per year until the child's 18th birthday. However, your adjusted gross income may limit your contribution amount as detailed in the contribution limit chart.
Contribution Deadline
Your tax filing deadline is generally April 15 of the following year.
Tax Deductibility of Contributions
Contributions to an Education Savings Account are not tax-deductible.
Distributions and Penalties
Qualified distributions are tax-exempt and include those that are used to pay for a child's college education. Non-qualified distributions may result in a 10% penalty on earnings. As of January 1, 2002, qualified distributions may be made for elementary and secondary schooling as well as for college education.
Minimum Investment Amounts
The minimum investment to open an Education Savings Account at Commerce Funds is $500 and the minimum additional investment to an existing account is $100.
IRS Circular 230 disclosure: Commerce Bank does not provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code, and was written to support the promotion or marketing of the transaction(s) or matter(s) addressed. Clients of Commerce Bank should obtain their own independent tax advice based on their particular circumstances.
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