What does ESA mean in EDUCATIONAL

An Education Savings Account (ESA) is an investment account specifically designed to help families save for post-secondary education costs. The funds saved in this account can be used to pay for tuition, books, room and board, technology related expenses, and other related activities associated with post-secondary education.

In order to open an ESA account, one must be the beneficiary of the account who has not yet turned 18 years old. An adult designated as “account holder” must also link their name or Social Security Number to the ESA account. This person is responsible for making deposits into the ESA and overseeing distributions from it.

Contributions vary by state but typically range from ,000 to ,000 per year per child. Additionally, some states allow contributions up until a child turns 30 years old while others offer a shorter time period such as age 25 or 26.

Yes! Contributions made into the ESA account are made on a post-tax basis meaning taxes have already been paid on the income used to fund contributions - however that contribution money will grow tax free within the ESA and withdrawals used for qualified education expenses are exempt from federal taxes. Additionally, many states offer additional income tax deductions or credits for contributions made into ESAs as well.

Funds can only be withdrawn from an Education Savings Account when used towards qualified higher education expenses such as tuition, books, room and board fees, technology fees etc., otherwise they may incur a penalty fee along with federal income taxes on the earnings portion of any withdrawal not spent on qualifying educational expenses.