What is a Coverdell Education Savings Account ?
A Coverdell ESA is a tax-advantaged investment account in the US designed to encourage savings to cover future qualified educational expenses.
How Does a Coverdell ESA Work ?
Money from ESA can be utilized for both higher education & elementary and secondary education (K–12). You are exempt from paying taxes on investment income & capital gains.
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Who is Eligible for Coverdell ESA ?
When the account is established, the designated beneficiary must be under the age of 18 or be a special needs beneficiary.
Income Limits FOR Coverdell ESA
Contributors MAGI must be less than $190,000 ($95,000 for single filers). If MAGI is between $190,000 & $220,000 ($95,000 & $110,000 for single filers), the $2,000 maximum is gradually phased out.
Eligible Expenses for Coverdell ESA
Qualified educational expenses include, tuition, books, supplies, uniforms, lodging and board, computer equipment, and internet service.
Contribution Limit For Coverdell ESA
A beneficiary may have many ESAs set up for them, but each beneficiary may only make a total annual contribution of $2,000.
Withdrawal Rules for Coverdell ESA
The ESA must be fully withdrawn by the time the beneficiary reaches age 30. If it is not, remaining amount is subject to tax on earnings and additional 10% penalty tax.
How to Open a Coverdell ESA ?
Any bank, brokerage firm, mutual fund company or other financial institution that handles traditional IRAs can help you open Coverdell account.