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Educational

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A Coverdell Educational Savings Account (ESA) is a trust or custodial account set up in the United States solely for the purpose of paying qualified education expenses for the designated beneficiary of the account. There are certain requirements to set up a Coverdell ESA:

  • When the account is established, the designated beneficiary must be under the age of 18 or a special needs beneficiary.
  • The account must be designated as a Coverdell ESA when it is created.
  • The document creating and governing the account must be in writing and must meet certain requirements.

You may be able to contribute to a Coverdell Education Savings Account (ESA) to finance a beneficiary's qualified education expenses if your modified adjusted gross income is below the established amount. Contributions must be in cash and must be made by the due date of the contributor's tax return (not including extensions). There is no limit to the number of accounts that can be established for a beneficiary; however the total contribution to all accounts on behalf of a beneficiary in any year cannot exceed $2,000.00. The contribution is NOT deductible.

In general, the designated beneficiary of a Coverdell ESA can receive tax free distributions to pay qualified education expenses. The distributions are tax free to the extent the amount of the distributions do not exceed the beneficiary's qualified education expenses. If a distribution does exceed the beneficiary's qualified education expenses, a portion of the earnings is taxable. Amounts held in the account must be distributed when the designated beneficiary reaches age 30. Certain transfers to members of the beneficiary's family are permitted.

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