Saving for your child's college education may be one of the most frustrating tasks you face. With school tuitions and fees rising every year, paying for higher education is becoming difficult for even many prepared parents. A Coverdell Education Savings Account from First State Bank & Trust Co. can assist you and your child so you can be confident that you can pay for their education.

A CESA may look similar to a Traditional or Roth IRA, but one advantage of a CESA is that your qualified higher education expenses are free from penalty tax and federal income tax. This makes a CESA a great tool for saving for your child's education.

Who has control of the assets?

Since the recipient of a CESA is usually under the age of 18, each CESA has a responsible individual, which is usually the parent or legal guardian of the child. This individual has control of the assets until the child reaches age 18.

For example, if you want to contribute to a CESA for your grandson, you are the contributor, your grandson's parent is the responsible individual with control of the assets, and your grandson is the designated beneficiary.

How much can I contribute each year?

You may contribute up to a total of $2,000 per year into one or more CESAs on behalf of a child, depending on your MAGI.

At what age is my child no longer eligible for contributions?

A child's eligibility for CESA contributions ends the day that child turns 18 years old.

Are the earnings on my CESA taxed?

No, neither you nor your child will pay taxes on the earnings from your CESA. You cannot take a tax deduction on your contributions, but when the beneficiary make his or her withdrawal, there will be no taxes due.

What is considered a qualified education expense?

Qualified higher education expenses are those used for tuition, fees, books, supplies, and equipment required for enrollment at an eligible higher education institution. Distributions must be made during the year the qualified expense is incurred. Any distribution exceeding the educational expenses is an unqualified distribution. The earnings portion of unqualified distributions may be subject to a 10% penalty tax.

Please refer to your tax professional for advice.

For additional information on Coverdell Education Savings Accounts, come by First State Bank & Trust Co. today and speak to an IRA representative.