Coverdell ESA (Education Savings Account)
A flexible, tax-advantaged way to save for education expenses – K-12, as well as college, graduate school, vocational school, etc. You can contribute up to $2,000 per year for each student's schooling by establishing a Coverdell Savings Account through State Farm®.
A Closer Look
- Deposits grow tax-free until distributed
- Earnings are tax-free as long as they are used for eligible expenses – including supplies, room and board and uniforms, as well as tuition
- Can be used to pay for primary or high school expenses, as well as higher education
- Anyone can contribute up to $2,000 per child each year
Funding Options through State Farm Bank®
You can save in an FDIC-insured State Farm Bank Certificate of Deposit (CD). Contact State Farm Bank at 1-877-SF4-Bank (877-734-2265). If you are deaf, hard of hearing, or do not use your voice to communicate, you may contact us via 711 or other relay services.
Investment Options through State Farm Mutual Funds
You can invest in a mutual funds portfolio that can help you keep pace with rising costs and inflation.
Contributions are not deductible, but amounts deposited in the account grow tax-free until distributed.
All earnings in the account accumulate on a tax-deferred basis and can be withdrawn from the account tax-free if used to pay for qualified education expenses, such as tuition and fees, required books, supplies and equipment, and qualified expenses for room and board.
The American opportunity tax credit or the lifetime learning credit can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell Education Savings Account as long as the same expenses are not used for both benefits.
- Anyone (including the child for whose benefit the account is established) may contribute to a child's Coverdell ESA, as long as his or her income falls within the income guidelines and the total of all contributions for one beneficiary for the tax year does not exceed the $2,000 limit.
- You can contribute to a Coverdell Education Savings Account anytime up to the child's 18th birthday. Contributions will not be accepted after that time, unless the child is a special needs beneficiary (as defined by Treasury Department regulations).
- There is no limit to the number of Coverdell Education Savings Accounts that can be established designating a particular child as beneficiary.
- You may contribute up to $2,000 annually to a child's Coverdell Education Savings Account if your modified adjusted gross income (see table under Contributions) is less than $95,000 as a single tax filer (or married filing separate) or $190,000 as a married couple filing jointly in the tax year in which you contribute. The $2,000 maximum contribution limit is gradually reduced if your modified adjusted gross income exceeds these limits.
Contributions are limited to $2,000 per child (designated beneficiary of the account), regardless of the number of accounts designating a particular child as beneficiary.
Aggregate contributions for the benefit of a particular child in excess of $2,000 for a taxable year are treated as excess contributions. If the excess contributions (and the earnings attributable to them) are not withdrawn from the child's account(s) before June 1st of the following tax year, the excess contributions are subject to a 6% excise tax (reported on the beneficiary's tax return) for each year the excess amount remains in the account.
Contributions may be made to both a Coverdell Education Savings Account and a qualified tuition program on behalf of the same designated beneficiary for the same taxable year.
You can make contributions from January 1st to December 31st for the current tax year. You may also make contributions for the prior tax year from January 1st up to the tax filing deadline, excluding extensions, which is generally April 15th. You must designate the tax year to which the contributions should be applied. The annual amount you can contribute to a Coverdell Education Savings Account is dependent on your modified adjusted gross income as determined on your federal income tax return. The following table should help you determine whether or not you are eligible to contribute:
|For Tax Year 2017||Modified Adjusted Gross Income|
|Your Tax Filing Status||Full Contribution||Partial Contribution||Not Eligible|
|Single/Head of Household||Up to $95,000||$95,000 - $110,000||Above $110,000|
|Married Filing Jointly||Up to $190,000||$190,000 - $220,000||Above $220,000|
To avoid taxes and penalties on earnings, distributions must not exceed the amount of qualified education expenses for the year in which they are taken.
Qualified education expenses include (1) qualified elementary and secondary education expenses and (2) qualified higher education expenses. Qualified education expenses also include any contribution to a qualified tuition program on behalf of the designated beneficiary.
Qualified elementary and secondary education expenses include expenses for:
- Tuition, fees, academic tutoring, special needs services in the case of a special needs beneficiary, books, supplies, and other equipment incurred in connection with the enrollment or attendance of the designated beneficiary as an elementary or secondary school student at a public, private, or religious school. (School means any school that provides elementary or secondary education [kindergarten through grade 12] as determined under state law.)
- Room and board, uniforms, transportation, and supplementary items and services (including extended-day programs) that are required or provided by a public, private, or religious school in connection with enrollment or attendance.
- Expenses for the purchase of any computer technology or equipment, or to pay for Internet access and related services, are considered qualified education expenses if such technology, equipment, or services are to be used by the beneficiary and the beneficiary's family during any of the years the beneficiary is in school (not including expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature). If the computer is for higher education purposes, the beneficiary must be the primary user.
- Tuition, fees, special needs services in the case of a special needs beneficiary, books, supplies, and equipment required for the enrollment or attendance of the designated beneficiary at an eligible educational institution.
The cost of room and board is a qualified education expense if the designated beneficiary is at least a half-time student* at an eligible educational institution. The expense for room and board is generally limited to:
- The school's posted room and board charge for students living on campus, or
- $2,500 each year for students living off campus and not at home.
(A half-time student is enrolled "at least half-time" if he or she is enrolled for at least half the full-time academic work load for the course of study the student is pursuing as determined under the standards of the school where the student is enrolled.)
An eligible educational institution is any college, university, vocational school, or other post-secondary educational institution eligible to participate in the student aid programs administered by the Department of Education. This category includes virtually all accredited public, nonprofit, and proprietary post-secondary institutions. (These same eligibility requirements for institutions apply for the American opportunity tax credit, the lifetime learning credit, and early withdrawals for IRAs for qualified higher education expenses.) The educational institution should be able to tell you if it is an eligible educational institution.
If funds remain in the account after the beneficiary completes his/her post-secondary education or reaches the age of 30,* there are two available options to distribute the funds:
The amount remaining in the account may be withdrawn for the designated beneficiary. The funds will be subject to both income tax and a 10% withdrawal penalty tax on the portion of the withdrawal that represents earnings.
The designated beneficiary may roll over the full balance to a different Coverdell Education Savings Account for another qualified family member, thus avoiding the taxes and penalty described above.
* If there is a balance in the Coverdell Education Savings Account when the beneficiary reaches age 30, it will generally be deemed distributed after 30 days.
Investing involves risk, including potential for loss.
Neither State Farm® nor its agents provide tax or legal advice.
Mutual Funds Disclosures
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Business Continuity Plan Disclosure for State Farm VP Management Corp.
State Farm VP Management Corp. has developed a Business Continuity Plan on how we will respond to events that significantly disrupt our business. Since the timing and impact of disasters and disruptions is unpredictable, we will have to be flexible in responding to actual events as they occur. With that in mind, download this information on our business continuity plan.
Contacting Us – After a significant business disruption contact your registered State Farm agent or go to our website at statefarm.com®.
Our Business Continuity Plan – We plan to quickly recover and resume business operations as soon as possible after a significant business disruption and respond by safeguarding our employees and property, making a financial and operational assessment, protecting the firm’s books and records, and allowing our customers to transact business. In short, our business continuity plan is designed to permit our firm to resume operations as quickly as possible, given the scope and severity of the significant business disruption. Our business continuity plan addresses: data back-up and recovery; all mission critical systems; financial and operational assessments; alternative communications with customers, employees, and regulators; alternate physical location of employees; critical supplier, contractor, bank and counter-party impact; regulatory reporting; and procedures to help ensure that our customers have prompt access to their funds and securities if we are unable to continue our business. Our business continuity plan may be revised or amended. If changes are made, an updated summary will be promptly posted on our website (statefarm.com) or you may obtain an updated summary by contacting your registered State Farm agent and requesting that a written copy be mailed to you.
Varying Disruptions – Significant business disruptions can vary in their scope, such as only our firm, a single building housing our firm, the business district where our firm is located, the city where we are located, or the whole region. Within each of these areas, the severity of the disruption can also vary from minimal to severe. In a disruption to only our firm or a building housing our firm, we may transfer our operations to a local site when needed and expect to recover and resume business within 1 business day. In a disruption affecting our business district, city, or region, we will transfer our operations to a site outside of the affected area, and expect to recover and resume business within 3 business days. In either situation, we plan to continue in business, transfer operations if necessary, and notify you through our website statefarm.com or your registered State Farm agent. In the unlikely event that the significant business disruption is so severe that it prevents us from remaining in business, our plan provides procedures to help ensure that our customers have prompt access to their funds and securities.
In all of the situations described above, in light of the various types of disruptions that could take place and that every emergency poses unique problems, it may take longer to resume operations during any particular disruption. If you have questions about our business continuity planning, you can contact your registered State Farm agent or by visiting our website at statefarm.com.
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