Coverdell ESA

Families who wish to save for their children’s future now have an attractive option at their disposal. Coverdell Education Savings Accounts (ESA) are a tax-advantaged investment vehicle designed to encourage savings to cover future education expenses in the United States. Coverdell Accounts allow money to grow tax deferred — and the proceeds to be withdrawn without tax — for qualified education expenses at qualified institutions.

Important features of Coverdell

• Coverdell ESA’s allow for a wide variety of investments in stocks, bonds, mutual funds, etc., unlike some of its predecessors.
• Coverdell ESA’s have a maximum contribution limit of $2,000 per year per child.
• Anyone can establish a Coverdell for a child / beneficiary and multiple savings accounts can be established for the same child as long as the $2,000 annual limit is maintained.
• Except on behalf of a special needs student, contributions cannot be made into the account after the beneficiary reaches age 18. Also, the balance of the account must be distributed within 30 days after the beneficiary reaches the age of 30 (unless the beneficiary is a special needs student).
• Eligible educational institutions can either be post secondary schools or an eligible elementary or secondary school.
• The income limit to qualify for tax deductions are as follows:

Filing Status	Full Contribution	Contribution Phased Out
Single Filers	Up to $95,000	$95,000 - $110,000
Joint Filers	Up to $190,000	$190,000 - $220,000

• There is a 10% penalty on earnings if funds are not used for educational purposes.
• Rollovers: distributed amounts are not subject to federal income taxes if they are rolled-over to another ESA for the benefit of the same beneficiary or a member of the beneficiary's family that is under the age of 30.