An education saving account is a tax-advantaged investment account that is recognized by the internal revenue service (IRS). The account covers education expenses related to elementary, secondary, or post-secondary education. Other than making education affordable, the account has many other benefits.
Other Benefits of Education Account
Additional income: since the account doesn’t prevent students from receiving other forms of aids such as scholarships, loans, and grants, they serve as additional sources of money where you can get the money and buy books, pay tuition, or pay for your upkeep.
Flexible withdrawal policies: many education accounts allow students to withdraw money until they are the age of 30. The good side is that you can withdraw the money anytime you want without any restrictions.
Since you can withdraw the amount anytime you want, you can withdraw the money regardless of whether you want to spend it on undergraduate or post graduate expenses.
How to Open the Account
Opening an education account follows a given number of steps. The first thing that you need to do is to determine the beneficially of the account. The beneficially can be you, your child, or your relative.
Once you have decided who will be the beneficially, you should determine the of education account that you want to open. Different financial companies offer different options that you can choose from.
For example, there is the traditional interest-earning savings account, mutual funds, or even individual stocks. You should take a look at the pros and cons of each of the accounts and settle on the account that pleases you the most.
The good side is that there is plenty of information online that you can use to make your decision. You can also consult experts who will guide you in making the right decision.
Before you settle on a given financial institution, you should consider the fees charged in opening the account and the fees that will be charged for account maintenance.
Once you have identified a good institution to go with, you should fill the right paperwork and start funding it. You should note that anyone can contribute to the account regardless of the relation to the beneficially.
Many accounts require that you contribute a maximum of $2,000 a year. If multiple parties will be contributing to the account, you should ensure that the amount contributed does not exceed $2,000.
When you put the money in the account, it continues to grow until it’s used on education expenses. It’s not allowed that you continue putting money into the account when the beneficially reaches the age of 18.
If the beneficially does not spend the money by the age of 30, he/she can’t withdraw it and it can be used by another beneficially. The money can also be transferred to another account at this time.
An education savings account is a great account as it makes education affordable and ensures that the student doesn’t have money problems when leaning. As a parent you should note that when the beneficially reaches 18 years, you don’t have control of the account.