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®.
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.
State Farm Bank – FDIC-insured CDs
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All earnings in the account accumulate on a tax-deferred basis and can be withdrawn from the account tax-free if used to pay for qualified education expenses, such as tuition and fees, required books, supplies and equipment, and qualified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.
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 If the excess contributions (and the earnings attributable to them) are not withdrawn from the child's account(s) before June 1st of the following tax year, the excess contributions are subject to a 6% excise tax (reported on the beneficiary's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:
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:
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:
(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.