Coverdell Education Savings Account
A Coverdell Education Savings Account, which used to be called an Education IRA, is not a retirement arrangement. It's a trust or custodial account created only for the purpose of paying the education expenses of your dependent children. You can contribute up to $2,000 to this account each tax year and have the earnings distributed tax free when you use them to pay for elementary, secondary or college expenses.
This account is available as a share account or a share certificate and earns dividends at a higher rate that or regular share account.
Who can contribute?
Anyone who has modified adjusted gross income (MAGI) can contribute. Single filers can contribute if they make $95,000 or less per year. Joint filers can contribute if they make $190,000 or less per year. Some people with higher MAGI may be able to make smaller contributions. Contributions are not allowed after the beneficiary reaches age 18 (except for special-needs beneficiaries).
How much can I contribute?
You may contribute up to $2,000 per child. This limit applies to all Coverdell Education Savings Accounts for the same child.
Who can make deductible contributions?
No one can deduct contributions.
What are the tax advantages?
When can I withdraw without restrictions?
Withdrawals are tax-and penalty-free only for qualified education expenses (earnings are subject to tax and penalty for most other withdrawals). Funds can be transferred from one child’s account to an account for another child in the family. Ask you tax advisor for additional information.