Coverdell Education Savings Account
What is a Coverdell Education Savings Account?
A Coverdell Education Savings Account (ESA) is sometimes called an Education IRA, but it is not an IRA. It is a trust to which anyone can contribute to for qualified education expenses of a child, from elementary through college. While contributions are made using after-tax dollars, all earnings are free of income tax and penalties. And as long as no more than the maximum limit is contributed each year per child, any number of Coverdell ESAs may be opened for any number of children (grandchildren, nieces and nephews, you name it!).
What are 'qualified college expenses'?
Qualified education expenses include tuition, fees, books, supplies and equipment needed for enrollment or attendance, and room and board at qualified schools. This includes public, private, and religious schools.
Is there a tax break with a Coverdell Account?
- The contributions are nondeductible and must be made in cash.
- Contributions cannot be made after a designated beneficiary reaches his or her 18th birthday, unless the beneficiary is a designated special needs individual.
- Contributions may be made to both the ESA and state sponsored (529) college tuition programs.
- Contributions are phased out as your Adjusted Gross Income increases.
What is an eligible educational institution?
An eligible educational institution is any college, university, or vocational school and includes almost all accredited public, nonprofit, and proprietary educational institutions.
Qualified education expenses now include elementary and secondary school educational expenses.
For more information about Coverdell plans, contact us.
