Coverdell Education Savings Accounts
Congress created the Coverdell Education Savings Account (ESA) as a tax-deferred way to help parents save for education expenses for their children.
Earnings in the account grow tax-deferred and can be withdrawn tax-free for these qualified educational expenses: tuition, fees, books, supplies, computer equipment, and room and board. Money withdrawn for any other purpose is taxed and is also subject to a 10% penalty.
Coverdell ESA features
- You can set up an account on behalf of any child … not just your own
- You can contribute for children under 18 years of age
- You must use the money by the time the child reaches age 30 (or transfer it to a younger sibling)
- You can use the money for qualified expenses at elementary and secondary schools, as well as colleges, whether private, public, secular or religious
- You can set up an account for the education expenses for a beneficiary with special needs (age limitations don’t apply in such circumstances)
- Maximum annual contributions are $2,000 per child from all sources
- You can contribute even if you’ve reached the maximum contribution level for a traditional or Roth IRA
Note: Please consult your tax professional regarding your specific situation. Investing in mutual funds involves risk, including the possible loss of principal. There is no assurance that the investment objective of any fund will be achieved.
Contribution limits: Your contribution limit may be reduced. If your modified adjusted gross income (MAGI) is between $95,000 and $110,000 (between $190,000 and $220,000 if filing a joint return), the $2,000 limit for each designated beneficiary is gradually reduced. If your MAGI is $110,000 or more ($220,000 or more if filing a joint return), you cannot contribute to anyone's Coverdell ESA.
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