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. Managing Wealth

    Education Savings Account Tutorial

    This comprehensive guide goes through what an Education Savings Plan is and how to set one up, contribute to it and withdraw from it.
  3. 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.
  4. Taxes

    Clearing Up Tax Confusion For College Savings Accounts

    Put your kids through school without being hounded by the tax man.
  5. 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.
  6. Retirement

    Don't Forget The Kids: Save For Their Education And Retirement

    Retirement and education financing are the two most important planning items for taxpayers.
  7. Managing Wealth

    Choosing The Right 529 Education Savings Plan

    Before you fund one of these education-savings vehicles, be sure you know their differences.
  8. 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.
  9. Personal Finance

    College Savings Accounts: U.S. Vs. Canada

    Saving for your child's education is an important commitment. Find out what help is available to you in the U.S. and Canada.
  10. Managing Wealth

    Savings Plans That Can Make Good Christmas Gifts For Kids

    With consumer debt levels rising throughout the U.S. and the rest of the world, there is a growing need to teach children how to live within their means and understand the wider value of money. ...
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