What is a Coverdell ESA?
Contributions are non-deductible, earnings are tax-deferred and distributions are tax free if used to pay for the account beneficiary's tuition, fees books, supplies, equipment, room or board at an eligible college or vocational school.
Can I deduct contributions to a Coverdell ESA?
No, contributions to a Coverdell ESA are non-deductible.
Who is eligible to contribute to an Education IRA?
Anyone, whether related to the account beneficiary or not, may contribute toward the combined maximum of $2,000.00 per year to a child's ESA. You must meet income requirements (please see the table below). In addition, no contributions may be made to an ESA on or after the designated beneficiary's 18th birthday, unless the beneficiary has special needs.
MAGI LIMITS FOR REGULAR EDUCATION SAVINGS ACCOUNT CONTRIBUTIONS
|Filing Status||Income Limit
(to make full $2,000 contribution)
(contribution limit below $2,000)
|Not Eligible to Make a Contribution|
|Single||Up to $95,000||$95,000 - $110,000||$110,000 or more|
|Married, filing jointly||Up to $190,000||$190,000 - $220,000||$220,000 or more|
|Married, filing separate||Up to $95,000||$95,000 - $110,000||$110,000 or more|
Are Earnings Taxable?
All distributions of earnings are tax-free and can be withdrawn at any time, either in total or partially as needed, if they are used for qualified education expenses.
Must I contribute the full amount each year?
No. You can contribute any amount your budget allows. In fact, if you choose, you need not make any contributions in a given year.
What if my child doesn't use the funds?
If your child or the beneficiary does not use the funds by the age of 30, the funds may be rolled over to a Coverdell ESA of another beneficiary in your family who is under the age of 30.
Is there a penalty if funds are not used for the account beneficiary's education?
Any distributions not used for qualified education expenses are subject to taxes and to a 10% penalty, as well, taxable to the beneficiary.
What is the deadline for contributions?
You must make the contributions by April 15 th of each year.
Can you have an ESA and a pre-paid tuition program?
Yes, you can contribute to both an ESA and a pre-paid tuition program for the same child.
KEY FEATURES OF EDUCATION IRAs
This document is for general information only and is not intended to provide specific advice or recommendations for any individual. We suggest that you consult your attorney, accountant, financial or tax advisor with regard to you.