NGFCU: IRA Education

at least $100,000 by the
National Credit Union Administration, a U.S. Government Agency.

Section contents:

The Coverdell Education Savings Account offers people a way to pay no federal tax on dividends their savings generate, as long as the accumulated savings are used for a student's primary or secondary school, college, graduate or vocational education. Eligible expenses include tuition, tutoring, books, supplies, room and board, and computer equipment, among other education essentials.

Highlights

With an NGFCU Coverdell Education Savings Account:

Investor sets up an account naming an individual under the age of 18 as beneficiary. Contributions of after-tax dollars can be made into the account until the beneficiary's 18th birthday.
More than one person can open a Coverdell Education Savings Account for the same beneficiary; but the total contributions in one year for one beneficiary may not exceed $2,000.
Investor can open an account for child, grandchild, niece, nephew, or any other individual younger than 18.
Beneficiary, or account owner, may withdraw the funds tax-free, as long as withdrawals do not exceed the beneficiary's eligible education expenses in the year withdrawn. Beneficiary has until his or her 30^th birthday to withdraw all funds for education expenses without penalty.
Investor can start an Accumulation Account with as little as $5 at Northrop Grumman Federal Credit Union.

Minimum Requirements

The following minimum requirements apply to Coverdell Education Savings Accounts:

Beneficiary must be under 18 years of age.
Maximum contributions depend on the contributors' modified adjusted gross income.

Frequently Asked Questions

Be sure to speak with a qualified tax advisor to verify the consequences of transactions involving your Coverdell Education Savings Account.

Q: If I start an account with my toddler as a beneficiary, how can I withdraw funds to pay for primary school?

A: You will retain control over the account for your minor child and will be able to withdraw funds. There is no federal tax on any part of your withdrawal, as long as the beneficiary's education expense equals or surpasses the amount you withdraw. This equates to tax-free dividends when savings are used for education expenses.

Q: I contribute to an IRA for my retirement. Does that prevent me from contributing to a Coverdell Education Savings Account?

A: Contributions to a Roth or Traditional IRA have no effect on the amount you can contribute to a Coverdell Education Savings Account.

Q: How long can funds be withdrawn for a beneficiary?

A: The beneficiary can withdraw funds until his or her 30^th birthday. Funds withdrawn after the 30^th birthday are subject to penalties. To avoid penalties, fund withdrawn must be equal or less than education expenses in the year withdrawn.

Q: What if I don't withdraw enough before the beneficiary is 30?

A: Funds in a Coverdell Education Savings Account can be rolled over into the Coverdell Education Savings Account of another beneficiary under the age of 30 in the same family.

Q: When can I start an account?

A: Start the account anytime before the beneficiary's 18^th, but as early as practical. As we all know - they grow up so fast.