Saving for your child's education? One way to accelerate the growth of the money you're saving is the Coverdell ESA.
- No monthly fee when a low minimum balance requirement is met ($100).
- No set up fee, no administrative fee.
- Dividends - calculated daily and paid monthly on balances of $100 or more.
What is a Coverdell Education Savings Account (ESA)? Contributions are invested for the purpose of funding an individual's education. ESA contributions are not tax-deductible, but the contributions may earn interest tax deferred until distributed, and the child will not owe tax on any withdrawal from the account if withdrawal is equal to or less than the child's qualified education expenses at an eligible educational institution for the year. Amounts withdrawn from an ESA that exceed the child's qualified education expenses in a taxable year may be subject to income tax and to an additional penalty of 10 percent. If the child does not need the money for pre- or postsecondary education, the child may roll or transfer the account balance to an eligible family member's ESA or to a qualified tuition program (QTP).*
Who can contribute to a Coverdell Education Savings Account? The answer to that question is almost everyone.
- Individuals of any age.
- Individuals without earned income.
- Individuals with modified adjusted gross income (MAGI) within the applicable limits for their filing status.
- Any corporation or other entity (including tax-exempt organizations) irrespective of income limits.
There are two key limitations:
- Each child can receive a total of the maximum allowed per year in contributions from all sources. It does not make a difference if this is done in a single account or multiple accounts designed to benefit the same child.
- In 2010, individuals may be limited in the amount of their contributions if their modified adjusted gross income (MAGI) exceeds $95,000 for single filers or $190,000 for married tax filers. Above these income levels, the ability to contribute is phased out. If income exceeds $110,000 for single tax filers, or $220,000 for married tax filers, no contribution is allowed.
What is the contribution limit? Eligible taxpayers may deposit up to $2,000 per year into a Coverdell ESA for a child under the age of 18. Parents, grandparents, other family members, friends, and even the designated beneficiary of the ESA (child) may contribute to an ESA for the same child, but the total contributions for a child for a taxable year cannot exceed $2,000. Eligible taxpayers may contribute up to $2,000 for multiple children in a year, however.
Who is a designated beneficiary? A designated beneficiary of an ESA is the person on whose behalf the ESA has been established.
What is a qualified education expense? A qualified elementary, secondary or higher education expense is one that is required for the enrollment or attendance by your child at an eligible educational institution.*
These expenses include the following:
- Academic tutoring
- Special needs services
- Room and board expenses
- Educational computer technology or equipment
- Internet access
To get more information, give us a call or visit one of our branches during business hours.