COVERDELL EDUCATION SAVINGS ACCOUNTS (ESA)
These vehicles, also know as Education Savings Accounts (ESA), are the old Education
IRAs but with lots of changes. You can contribute as much as $2,000 per child and qualifying expenses have
been expanded to include elementary and secondary school costs. Your
contributions aren’t deductible, but dollars used for qualifying expenses are tax-free.
- Coverdell ESA is a trust or custodial account established to pay the qualified education expenses of a designated beneficiary. Up to $2,000 annually can be contributed to the account.
- The buildup of interest within an account is tax free, and neither the principal nor interest is taxable upon withdrawal if used for a qualified education expense.
- Qualified education expenses include tuition, fees, books, supplies, and equipment at a public, private, or religious elementary or secondary school or college.
- Corporations, charitable organizations, and foundations can contribute to a student's account.
- Individual taxpayers with modified adjusted gross incomes under $95,000 and married taxpayers with incomes under $190,000 can make the maximum allowable annual contribution to an ESA. The allowable contribution is gradually reduced at higher levels of income.
If you have unused Coverdell funds, you can roll them over to other family
members, provided they’re under age 30, without penalty. You can also claim
the Hope or Lifetime Learning credits for expenses not
paid with Coverdell money.
Because I can use this money for elementary, secondary, and college expenses,
this is one of the first places I’d put my education savings dollars.
©2001 Sima Enterprises - email:sales@simaenterprises.com
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