The Coverdell Education Savings Account (ESA) was created as an incentive to help
parents and students save for education expenses. The total contributions for the
beneficiary of this account cannot be more than $2,000 in any year, no matter how
many accounts have been established. A beneficiary is someone who is under age 18 or
has special needs.
Contributions to a Coverdell ESA are not deductible, but amounts deposited in the
account grow tax-free until distributed. The beneficiary will not owe tax on the
distributions if they are used for qualified education expenses at an eligible
institution. This benefit applies to qualified higher education expenses as well as
to qualified elementary and secondary education expenses.
If there is a balance in the Coverdell ESA when the beneficiary reaches age 30 (unless
the beneficiary is a special needs individual), it must generally be distributed
within 30 days. The portion representing earnings on the account will be taxable and
subject to the additional 10% tax. The beneficiary may avoid these taxes by rolling
over the full balance to another Coverdell ESA for another family member.
This publication is distributed with the understanding that the author, publisher and
distributor are not rendering legal, accounting or other professional advice or
opinions on specific facts or matters, and, accordingly, assume no liability
whatsoever in connection with its use. The information contained in this newsletter
was not intended or written to be used and cannot be used for the purpose of (1)
avoiding tax-related penalties prescribed by the Internal Revenue Code or (2)
promoting or marketing any tax-related matter addressed herein. © 2014