EDUCATIONAL IRA FAQ

• How is an ESA IRA different from a 529 plan?

  An Educational IRA is more formally known as a Coverdell Education Savings Account (ESA). It's an account designed to help you save for your child's education, whether that's for your college savings fund or another form of higher education. You may also use the funds for K-12 expenses, books, supplies, computers, and more. 

  A Coverdell ESA is similar to a 529 savings plan but there are a few differences. An ESA IRA has contribution limits based on the parents' income and the funds must be withdrawn once the child turns 30. A 529 plan has no income restrictions and the funds may be transferred to another child if the original beneficiary doesn't use all the funds for qualified expenses. 

  It's a good idea to open both types of accounts if you're eligible for them. That way, you can enjoy as many advantages as possible and offer your child the best education available.

• What are the rules for contributing to an ESA?

  You may contribute up to $2,000 a year provided your modified adjusted gross income is under or equal to $95,000. If your income is over that limit, your contributions will be reduced by a certain amount depending if you're a single filer or are married filing jointly.

• When can I withdraw funds from an ESA IRA?

  You can make tax-free withdrawals to pay for qualified education expenses when your child is any age under 30. After age 30, you will likely need to pay penalties or taxes unless your child or beneficiary has special needs.

  Keep in mind you need to open the ESA IRA before your child reaches the age of 18.

• Does an ESA IRA offer tax advantages?

  Yes, an ESA IRA allows you or your child to make tax-free withdrawals to pay for qualified education expenses. The funds may also grow tax free. This is because all contributions to the account must be from post-tax, earned income and the contributions aren't tax deductible. 

  In other words, you and any contributing family members pay taxes now so that your child can enjoy tax-free withdrawals in the future!

• How does an Educational IRA Certificate work?

  All Wasatch Peaks Credit Union Certificates are available as IRAs, including the ESA IRA. Here's how it works: 

  • You open your IRA and choose a Certificate term of 3 months to 60 months
  • You enjoy higher Certificate rates 
  • You get the tax benefits of your chosen IRA (ESA, Roth, or Traditional)
  • You can withdraw funds when your Certificate term ends or reinvest in another Certificate IRA

   

• Do I need to join Wasatch Peaks Credit Union to open this account?

  Yes, you need to join the credit union, and becoming a member is easy! You simply need to meet these criteria:

  • You are an immediate family member of an existing member-owner, such as a parent, child, brother, sister, spouse, or surviving spouse.
  • You live, work, worship, or attend school in Weber, Morgan, or Davis Counties in Utah.