Education Savings Account
The Education Savings Account or the ESA is a very good way to invest for the better future of your child. Children grow fast and in no time you will find that your child is ready to go to college. So, it is a very good idea to start saving for the financial needs of your child, when he grows up, as early as possible.
The Education Savings Account is actually a custodial account, where the child owns the money but the account is managed by the parents or a legal guardian of the child. The best attribute of the account is that the money being saved in the account is tax free and if the money is withdrawn and used for the child, then the parents need not pay any taxes for it.
The Education Savings Account can be opened by the parents or relatives of a child, in his name, if he is under the age of 18. The child also needs to have a social security number. The Education Savings Account has a maximum annual contribution limit of $2,000 per student until the child reaches his 18th birthday. But this does not mean that you can actually contribute $2,000 in the ESA. The contribution is also limited by your earnings per year. In some financial institutions and banks, there is a minimum limit of contribution too. It is generally kept at $100 but it may vary with various institutions. At the most, it can be $500 per month.
But before you take the decision to open an Education Savings Account for your child, you must keep in mind that the money that is being accumulated in the ESA of your child may reduce his chances of getting financial aids in future. The ESA may also reduce the availability of certain tax credits to your child.