Coverdell Education Savings Account (ESA)
The Coverdell ESA, also known as the education IRA, was created in 1998 to give parents a tax-advantaged account in which they could save money for a child's college education. Anyone who has an adjusted gross income that falls within the government limits may contribute a maximum of $2,000 per year into an account that is established for the benefit of ("FBO") the child. The AGI phase-out for single parents is $95,000 to $110,000 and it is $190,000 to $220,000 for married parents.

While contributions are not tax deductible, the money within the Coverdell ESA grows tax-deferred and is tax-free if used for qualified educational expenses at an institution of higher education, including tuition, room and board, and other related costs. The money must be used by the beneficiary's 30th birthday or it must be distributed and subject to ordinary income tax and a 10% penalty on the earnings. The same restrictions also apply to any non-education-related withdrawals made before the beneficiary's 30th birthday.

With the increasing costs of education, these instruments have become increasingly popular with parents. Learn more about these accounts within the tutorial Education Savings Accounts.



Section 529 College Savings Plans

Related Articles
  1. Financial Advisor

    Why Coverdell ESAs May Trump 529 Plans

    Coverdell ESAs still trail 529 plans in popularity by a wide margin due to their low contribution limits. But these accounts can be a viable alternative.
  2. Retirement

    4 Smart 529 Plan Alternatives to Consider

    Learn about some alternatives to the popular college-saving 529 plan that may also make sense, such as prepaid tuition plans and Coverdell accounts.
  3. Personal Finance

    529 Plan or Coverdell? How to Choose College Savings Plans

    There are two options when it comes to tax-free college savings plans: a 529 plan or a Coverdell ESA. Here's how they compare.
  4. Financial Advisor

    Advising FAs: Explaining College Savings Accounts to Clients

    There are several types of savings accounts designed for higher education available today. The right one for you will depend upon factors such as your tax bracket, time horizon, investment objectives ...
  5. Personal Finance

    Saving for College: 7 Options to Consider

    There are many options choose from when you're looking for the right educational savings plan for your child.
  6. Personal Finance

    529 Plans: Your Most Pressing Questions Answered

    When parents start preparing for college costs, here are the most commonly asked questions about 529 plans.
  7. Taxes

    Tax Credits And Deductions For Parents

    Your children can help you save on your taxes with these credits and deductions.
  8. Personal Finance

    Stop Procrastinating! Enroll In A College Savings Plan

    The cost of sending your kids to college could be a serious financial burden - unless you get prepared. Now.
  9. Financial Advisor

    New Parents Need a Financial Planning Checklist

    There are many areas of personal finance to consider throughout the journey of parenthood. Here are a few to review with your advisor.
  10. Financial Advisor

    Why Ignoring Your 529 Plan Could Cost You Big

    Saving for your kids' college tuition can be difficult. Here's how a 529 plan can help and how you, too, can help your 529 plan.
Frequently Asked Questions
  1. Depreciation Can Shield Taxes, Bolster Cash Flow

    Depreciation can be used as a tax-deductible expense to reduce tax costs, bolstering cash flow
  2. What schools did Warren Buffett attend on his way to getting his science and economics degrees?

    Learn how Warren Buffett became so successful through his attendance at multiple prestigious schools and his real-world experiences.
  3. How many attempts at each CFA exam is a candidate permitted?

    The CFA Institute allows an individual an unlimited amount of attempts at each examination.Although you can attempt the examination ...
  4. What's the average salary of a market research analyst?

    Learn about average stock market analyst salaries in the U.S. and different factors that affect salaries and overall levels ...
Trading Center