College Savings

Coverdell

With the rising cost of higher education, many families must plan to build a fund for their children’s college expenses. The Coverdell Education Savings Account was created solely for this purpose. It will help many families prepare for this financial challenge.

Taxpayers may deposit up to $2,000 per year into an Education Savings Account (“ESA”) for a child under age 18 (or a special needs student of any age). Parents, grandparents, other family members, friends, and a child him/herself may contribute to the child’s ESA, provided that the total contributions for the child during the taxable year do not exceed the $2,000 limit and the individual contributor’s income does not exceed certain limits. Corporations and other entities may make contributions without being subject to the income limits. Contributions may grow tax-free until distributed. The child will not owe tax on any withdrawal from the account if the child’s qualified education expenses for the year equal or exceed the amount of the withdrawal.

If the child does not need the money for education, the account balance can be rolled over to the ESA of certain family members who can use it for their qualified education expenses. Earnings allocated to amounts withdrawn from an ESA that exceed the child’s qualified education expenses in a taxable year are generally subject to income tax and to a penalty tax of 10 percent.

Eligibility

Anyone whose AGI is not in excess of $220,000 (joint returns) or $110,000 (single returns) may contribute on behalf of a designated beneficiary who has not reached the age of 18.

Establishment Deadline

Tax filing due date, no extensions.

Total Contributions

$2,000 per child per year. Contribution limit is phased out for AGIs from $190,000 to $220,000 (joint returns) and from $95,000 to $110,000 (single returns).

Deductible Contribution

Not permitted.

Non-deductible Contributions

Non-deductible contributions permitted. See “Total Contributions” for contribution limits.

Catch Up Contributions

No catch up contributions.

Contribution Deadline

Tax filing due date. No extensions.