Education – Grandwood Limited

Education Planning

It's never too early to start saving for your child's education. Get the benefit of tax-advantaged savings with our education savings plans to help pay for the cost of education as you manage assets on their behalf.

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Coverdell ESA

What is a Coverdell ESA? (formerly known as an Education IRA)

A Coverdell Education Savings Account (ESA), formerly known as an Education IRA, is an account that helps you save money for the cost of elementary, high school or higher education for a designated beneficiary. You can open multiple accounts on behalf of individuals under the age of 18 and make a non-deductible contribution as long it does not exceed $2,000 per child. Your ESA accounts will grow free of federal taxes and your withdrawals will also be tax-free if you meet the requirements as stated by the Federal Government. For more detail, please visit the IRS website regarding Coverdell ESA regulations.

What are the rules regarding contributions to a Coverdell ESA?

If your modified adjusted gross income (MAGI) is less than $110,000 (or $220,000 if filing a joint return), you may be able to establish a Coverdell ESA. Contributions of up to $2,000 in total can be made per child under the age of 18, no matter how many accounts have been established. Only cash can be contributed to a Coverdell ESA and the contributions must stop after the individual turns 18, unless he/she is a special needs beneficiary.

Are my contributions tax-deductible?

No, contributions to a Coverdell ESA are not tax deductible but will grow tax-deferred until withdrawn for elementary, high school or college expenses. If used for qualifying education expenses, they are withdrawn tax-free. If funds are withdrawn for purposes other than education expenses, any gains will be taxed and a 10% penalty may apply.

What expenses can the Coverdell ESA funds cover?

The following are some qualified education expenses for this type of education investment account. For more information, please visit the IRS website.

Qualified Education Expenses

Tuition and fees
Books, supplies, and equipment
Academic tutoring
Special needs services for a special needs beneficiary
Room and board
Uniforms
Transportation
Supplementary items and services (including extended day programs)

What is the deadline for opening and funding a Coverdell ESA?

The deadline to open and fund a Coverdell ESA is April 15th for any tax year.

How do I establish a Coverdell ESA?

Any bank, mutual fund company, or other financial institution that serves traditional IRAs is capable of serving as custodian of an ESA. Your cash contribution can be invested through the sponsoring institution–stocks, bonds, mutual funds, certificates of deposits, etc. There is no limit to the number of ESAs that can be established for any one child as long as the total contributions do not exceed $2,000 per year. If more than $2,000 is contributed in total, then the excess is subject to a 6% excise tax penalty. You can eliminate this penalty by withdrawing the excess amount before May 31st of the following year, otherwise it will be subject to penalties in subsequent years.

Custodial Account

Grandwood's Custodial Account can help you save for your child's education and build a nest egg that will contribute to their future financial stability. A Custodial Account lets you manage a minor's assets on their behalf, gives you a gift tax advantage and the flexibility to invest in any combination of stocks, mutual funds, bonds and ETFs.

What is a custodial account?

A custodial account is an investment account set up for a minor under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) based upon your state of residence. The account is administrated by a custodian, who will manage the account for the minor’s benefit until he or she reaches the age of majority. Assets held in the account are owned by the minor under his or her name and social security number. Assets in the account are turned over to the minor once he or she reaches the age of majority (18 or 21 depending on the state).

What are the benefits of a custodial account?

Tax Benefits

You can contribute up to $15,000 per person annually ($30,000 for married couples filing jointly) with no gift tax incurred.
The first $1,050 in earnings is tax-free, the next $1,050 of earnings is taxed at the child’s tax rate, and the earnings over $2,100 is taxed at the adult’s tax rate.

Flexibility

Grandwood’s custodial account doesn’t have contribution limits, custodian income limits or minimum deposit requirements. You can withdraw the money for any purpose without time restrictions, as long as it is for the benefit of the minor.
You can invest in stocks, bonds, mutual funds and ETFs.

How do I open a Grandwood's custodial account?

Opening a custodial brokerage account for minors is simple, just open an account online or mail/fax us the following documents:

Account application form
Online service agreement form
A copy of the custodian’s valid government issued ID

Need Help? U.S. Toll Free 1.800.869.8800 Outside the US 1.718.961.6600

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