Terms of Use What is a Coverdell ESA? Formerly called Education IRAs, a Coverdell Education Savings Account (ESA) is a type of IRA that allows you to make nondeductible contributions up to $2,000 annually for anyone under the age of 18 or a special needs beneficiary of any age. Assets in a Coverdell ESA must be used for qualified education expenses before your child (the designated beneficiary) turns 30 in order to be withdrawn tax-free. Coverdell accounts offer individuals a simple savings mec  More...

Terms of Use If you're good at planning ahead, you may have thought about it before your child was even born, perhaps while you were shopping for a bassinet and teddy bears. At any rate, you probably started thinking about it when your child was very young. After all, it's one of the major responsibilities you face as a parent: your child's college education. Personal growth and expanded horizons are reason enough to send a child to college, but there are more practical considerati  More...

Terms of Use 529 plans are one of the more popular options for families saving for their child's college education. Although the plans do differ from state to state, they are all exempt from federal income tax, giving you a real boost to your college fund. What is a 529 plan? A 529 plan is a state-operated plan that gives families a federal tax-free way to save money for college. Specific plan attributes vary by state but all have several common features. What are the two types of 529 plan  More...

Terms of Use No, contributions to a Coverdell Education Savings Account must be made in cash, not securities. Once money is contributed to a Coverdell ESA, it can be invested in stocks, bonds, or mutual funds or it can be left in cash or money market assets.

Terms of Use Earnings on distributions not used to pay for the beneficiary's qualified education expenses are included in the beneficiary's taxable income and subject to a 10% tax penalty. Qualified education expenses are for primary, secondary, and postsecondary education expenses, including tuition, fees, tutoring, books, supplies, related equipment, room and board, uniforms, transportation and computers. The balance of the account must be distributed within 30 days after the benefi  More...

Terms of Use Contributions to a Coverdell ESA are not tax deductible. Money invested will compound tax-free and remain untaxed upon withdrawal. If the distribution from an ESA does not exceed the beneficiary's qualified education expenses, then no federal income tax will be owed. If the money is not withdrawn by the time the beneficiary turns 30, it must be distributed to the beneficiary, who will then pay a 10% penalty on the distribution. One exception is that the proceeds can be transf  More...

Terms of Use Yes , anyone can contribute to a Coverdell Education Savings Account on behalf of the designated beneficiary. You do not have to be related. You can make a contribution to a Coverdell Education Savings Account as long as your income does not exceed these MAGI limits: In 2023: $220,000 (married filing jointly) $110,000 for other filers Income phaseouts start at $190,000 (married filing jointly) $95,000 (other filers). There can be multiple savings accounts established for  More...

Terms of Use While paying for college may seem a daunting task, help is available from the state, the federal government, colleges, private scholarships and grants, and other lending sources. To apply for financial aid, you must first complete a “Free Application for Federal Student Aid” or FAFSA. You can get a FAFSA through the U.S. Department of Education, colleges, libraries or on the Internet at FAFSA ® Application | Federal Student Aid . FAFSAs are accepted for the upco  More...

Terms of Use Amounts can be left in the account for up to 30 days after the date the designated beneficiary turns 30. After this point, the distribution earnings would become fully taxable and a 10% penalty would apply. If the assets are not going to be used for the designated beneficiary after he or she attains age 30, the balance can be rolled over to a Coverdell Education Savings Account for another designated beneficiary who is a qualified family member under the age of 30. You can also mo  More...

Terms of Use No, contributions can no longer be made once the beneficiary reaches the age of 18. Once the beneficiary reaches age 18, he or she can take control of the account. Funds must be used by the time the beneficiary turns 30 years old or transferred to a younger sibling. The funds can also be rolled into a 529 plan. 529s have no age limit. Note: special considerations are given to disabled and special needs beneficiaries. The contributions and age limitations are lifted for these in  More...