What is a Coverdell Education Savings Account?

Published on April 18, 2011

What is a Coverdell Education Savings Account A Coverdell Education Savings Account (ESA) is an account created as an incentive to help parents and students save for education expenses.

The total contributions for the beneficiary of a Coverdell Education Savings Account cannot be more than $2,000 in any year, no matter how many accounts have been established. A beneficiary of a Coverdell Education Savings Account is someone who is under age 18 or is a special needs beneficiary.

Contributions to a Coverdell Education Savings Account are not deductible, but amounts deposited in the account grow tax free until distributed. The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution. This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses. Annual contributions may be made to a Coverdell Education Savings Account until the beneficiary reaches age 18, or is a special needs beneficiary.

Here are some things to remember about Distributions from a Coverdell Education Savings Account: Coverdell Education IRA New York, New Jersey, Connecticut

WHAT ARE THE LIMITS OF A COVERDELL EDUCATION SAVINGS ACCOUNT?

Coverdell Savings Account ESA
There are contribution limits for taxpayers based on the contributor’s Modified Adjusted Gross Income. Contributions to a Coverdell Education Savings Account may be made until the due date of the contributor’s return, without extensions.

If there is a balance in the Coverdell ESA when the beneficiary reaches age 30, it must generally be distributed within 30 days. The portion of a Coverdell Education Savings Account representing earnings on the account will be taxable and subject to the additional 10% tax. The beneficiary may avoid these taxes by rolling over the full balance to another Coverdell Education Savings Account for another family member. For more details, see IRS Publication 970, Tax Benefits for Higher Education (at IRS.gov) or call 800-TAX-FORM (800-829-3676).

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