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Coverdell Education

A good education is never out of reach. Like every parent, you want to ensure that your child has a bright future. And a good education can make a world of difference. Start preparing now by opening a Coverdell education savings account.

What is a Coverdell education savings account (ESA)?

How much can be contributed to an ESA?
Whom can contribute to an ESA?
What are qualified education expenses?

What are nonqualified distributions?

A Coverdell education savings account (ESA) allows contributors to make after-tax contributions of $2,000 per year until a child attains age 18. The earnings generated on ESA contributions remain tax-deferred while held in the ESA. And when a child uses ESA assets to pay for qualified education expenses, the contributions and the earnings are distributed tax-free.

ESA Contributions

Each child may not receive more than $2,000 per year in an ESA. But individuals may contribute up to $2,000 per year for an unlimited amount of children, as long as the individual's modified adjusted gross income (MAGI) falls below or within the income limits for the year. 
The income limits are as follows:

Single Filer: $95,000 - $110,000
Married, Filing Joint Tax Return: $190,000 - $220,000

Eligible family members must be under age 30 and include the child's:

• Father, Mother, Stepfather, Stepmother, or In-law
• Spouse
• Brother, Sister, Stepbrother, Stepsister, or In-law
• Child or Dependent of Child, Stepchild, Eligible Foster Child, or In-law
• Aunt or Uncle
• First Cousin
• Niece or Nephew or a Spouse

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Qualified Education Expenses

Elementary, Secondary, or Post-Secondary:

Tuition and fees
Supplies and equipment
Room and board
Special needs services

Nonqualified Distributions

If a child withdraws ESA amounts that exceed her qualified education expenses for the year, a portion of the distribution is taxable. The child must include the earnings attributable to the excess distribution in her gross income for the year, and pay a 10 percent penalty on the taxable earnings unless a penalty exception applies (e.g., death or disability).

If a child does not use the ESA assets or does not transfer or roll over the ESA assets to another "beneficiary" by the time he reaches age 30, the ESA will be deemed distributed. The child must include the distributed amount in gross income for the year and pay a penalty on the earnings if the distribution is not used to pay for qualified education

NOTE: The age 18 and age 30 limits do not apply to special needs individuals.

Please contact one of our representatives for more information on Coverdell education savings accounts.

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