Education Savings Account (formerly Education IRA)

An education savings account is an education savings plan set up and managed by a parent or guardian for the benefit of a minor. Amounts deposited in the account can grow tax-deferred until distributed, and the child will not owe tax on any withdrawal for qualified primary, secondary and/or higher education expenses.

The ESA is controlled by the parent for the benefit of the child. When the child reaches age 18 the parent may continue to manage the account or transfer that power to the child. Contributions to the education savings account are capped at $2,000 maximum per year until the child’s 18th birthday.

There is a minimum contribution of $2,000 to open an education savings account and contributions must be made by April 16, 2007 for the 2006 tax year. Withdrawals and earnings are tax free if withdrawn for qualified educational expenses before the child is age 30. Withdrawals of earnings for non-qualified education expenses are subject to a 10% federal penalty and will be considered taxable. Excess contributions are subject to a 6% additional tax, for each year that the excess remains in the account.

If there are any unused funds in the account when the beneficiary reaches the age of 30 they must be distributed to him or her as a taxable withdrawal. However, rolling these funds over to a qualified family member of the designated beneficiary can preserve their tax-free status.

Modified Adjusted Gross Income		Maximum Contribution
Single Filers	Married Filers
$95,000 & under	$190,000 & under	$2,000
$96,500	$193,000	$1,800
$98,000	$196,000	$1,600
$99,500	$199,000	$1,400
$101,000	$202,000	$1,200
$102,500	$205,000	$1,000
$104,000	$208,000	$800
$105,500	$211,000	$600
$107,000	$214,000	$400
$108,500	$217,000	$200
$110,000 and over	$220,000 and over	$0