A parent would choose to set up a Coverdell Education Savings Account for a child in order to save for college expenses AND:

By Investopedia AAA
A:

A parent would choose to set up a Coverdell Education Savings Account for a child in order to save for college expenses AND:



a. avoid gift taxes.



b. take a tax deduction on the contribution.



c. enjoy tax-free investment earnings.



d. enjoy tax-deferred investment earnings.




The correct answer is "c." There is no tax deduction available for contributing to a Coverdell. While the contribution is considered a gift, the annual Coverdell contribution limit of $2,000 is well under the annual gift tax exclusion of $13,000. And, as long as withdrawals are used for qualified educational expenses, the earnings can be withdrawn tax-free.



RELATED FAQS

  1. Why does time value of money (TVM) assume that a dollar today is worth more than ...

    Learn about time value of money, or TVM, and how a present value calculator is used to determine the value of money received ...
  2. When is an expense ratio considered high and when is it considered low?

    Discover what is considered an exceptionally high or low expense ratio for a mutual fund or ETF, and learn why this figure ...
  3. Where did the term Magna Cum Laude originate from and why is it used in academics?

    Learn what "magna cum laude" means, read about its etymology and review why academic institutions use this phrase and other ...
  4. How does someone earn the designation Magna Cum Laude?

    Discover the meaning and origins behind the term magna cum laude, an academic designation used to award honors students at ...
RELATED TERMS
  1. Debit Card

    An electronic card issued by a bank which allows bank clients ...
  2. Account Minimum

    The minimum balance required to be maintained in an investment ...
  3. Pension Risk Transfer

    When a defined benefit pension provider offloads some or all ...
  4. Foreign remittance

  5. Average Revenue Per User (ARPU)

    A measure of how much income a business generates, given the ...
  6. Marginal Propensity to Save

    The proportion of an aggregate raise in pay that a consumer spends ...

You May Also Like

Related Articles
  1. Savings

    How Safe Is Venmo And Why Is It Free?

  2. Savings

    Profit From High Consumer Spending With ...

  3. Savings

    The Top 4 Discount Travel Websites

  4. Savings

    Which Are The Best Credit Cards To Take ...

  5. Savings

    Who Gives The Best Rewards – Expedia ...

Trading Center