What Is a Coverdell ESA
The Coverdell Educational Savings Account (ESA) is a tool used to finance education. Often, a parent will establish a Coverdell ESA for a child who will incur expenses, such as tuition, from K-12 or college education. Only certain education expenses qualify for financing through a Coverdell ESA. The distributions from an ESA are tax-free, to the extent that they are used to pay qualified expenses. In 2002, the Coverdell ESA was established in its current form. Before then, it was not an attractive college savings vehicle. The contribution limit, formerly $500 U.S. Dollars (USD) per year was raised to $2,000 USD per year. The contributions to a Coverdell ESA are not tax-deductible, but are tax-advantaged in two ways: the account grows tax-deferred, and normal distributions are not taxable. Contributions can be made to an ESA until the beneficiary — the child — reaches age 18. Aside from tax advantages, there is an additional benefit, in that the account owner has complete discretion a
A Coverdell (Education Savings Account) ESA is a tax advantaged investment account created to encourage savings for the purpose of paying the qualified education expenses of the designated beneficiary of the account. What are some advantages of a Coverdell ESA? Contributions to a Coverdell ESA are not tax deductible, but amounts deposited in the account grow tax free until withdrawn. Generally, withdrawals are tax free if they are used for educational purposes and are not more than the beneficiary’s qualified education expenses for the tax year. Keep in mind, money in an ESA is not considered the child’s (beneficiary’s) money when applying for federal financial aid as long as the owner of the account is someone other than the beneficiary, such as a parent. You can claim the Hope or lifetime learning credit in the same year you take a tax-free distribution from a Coverdell ESA, provided that the distribution from the Coverdell ESA is not used for the same expenses for which the credit i
A Coverdell ESA (Education Savings Account) was created by Congress to provide people a way to save for a child’s education, tax-free, whether it be for K-12, college, graduate school, or any other formal education that children may pursue. It was named for the late Sen. Paul Coverdell of Georgia, for years the champion of such legislation.
(formerly known as an Education IRA) A Coverdell Education Savings Account (ESA), formerly known as an Education IRA, is an account that helps you save money for the cost of elementary, high school or higher education for a designated beneficiary. You can open multiple accounts on behalf of individuals under the age of 18 and make a non-deductible contribution as long it does not exceed $2,000 per child. Your ESA accounts will grow free of federal taxes and your withdrawals will also be tax-free if you meet the requirements as stated by the Federal Government. For more detail, please visit the IRS website regarding Coverdell ESA regulations. What are the rules regarding contributions to a Coverdell ESA? If your modified adjusted gross income (MAGI) is less than $110,000 (or $220,000 if filing a joint return), you may be able to establish a Coverdell ESA. Contributions of up to $2,000 in total can be made per child under the age of 18, no matter how many accounts have been established.
