- Savings vehicle that allows assets to accumulate tax-deferred.
- Can be established by parents, grandparents, or family friends.
- Maximum contribution of $2,000 per beneficiary, per year.
- Distributions are exempt from federal taxes if used to pay qualified education expenses of the beneficiary.
- Can be used to cover elementary and secondary school expenses, as well as college.
- Unlimited investment options.
- Can be rolled over to another ESA for the same beneficiary or another family member.
- Income limitations on donor: Contributions are phased out for incomes between $95,000– $110,000 (single filers) and $190,000–$220,000 (joint filers).
- Contributions may be made until the student reaches age 18.
- Remaining funds must be distributed to the beneficiary at age 30, with earnings taxed as ordinary income plus a 10-percent penalty.
Financial Aid Impact
- High impact if account is owned by student.
- Low impact if account is owned by parent. Treated as an asset of the account owner.
- Qualified distributions are not considered income of parents or student.