Which account type is specifically designed to help with education savings?

Which account type is specifically designed to help with education savings?

• A. Health Savings Account
• B. Coverdell ESA
• C. Traditional IRA
• D. SEP IRA

Answer: (B)

The Coverdell Education Savings Account (ESA) is specifically designed for education savings, making it the correct answer. This account allows individuals to save and invest money for education costs, including K-12 expenses and higher education. Contributions to a Coverdell ESA are made with after-tax dollars, and the earnings grow tax-free. Withdrawals are also tax-free when used for qualified education expenses, offering a significant tax advantage for families looking to save for educational purposes. While other account types serve different specific functions—such as health savings or retirement savings—the Coverdell ESA directly addresses the financial needs associated with education, making it uniquely suited for that purpose. Health Savings Accounts focus on medical expenses, while Traditional and SEP IRAs are primarily retirement savings vehicles, which do not cater specifically to education costs.

The Coverdell Education Savings Account (ESA) is specifically designed for education savings, making it the correct answer. This account allows individuals to save and invest money for education costs, including K-12 expenses and higher education. Contributions to a Coverdell ESA are made with after-tax dollars, and the earnings grow tax-free. Withdrawals are also tax-free when used for qualified education expenses, offering a significant tax advantage for families looking to save for educational purposes.

While other account types serve different specific functions—such as health savings or retirement savings—the Coverdell ESA directly addresses the financial needs associated with education, making it uniquely suited for that purpose. Health Savings Accounts focus on medical expenses, while Traditional and SEP IRAs are primarily retirement savings vehicles, which do not cater specifically to education costs.