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Coverdell ESA Plans

Coverdell ESA Plans

August 19, 2020
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Coverdell Education Savings Account (Coverdell ESA)

Last week we discussed 529 Plans as one of the education savings vehicles, so today we want to discuss the Coverdell Education Savings Account (Coverdell ESA) as another way to save for college/education expenses. 

Key Highlights/Requirement to consider when establishing a Coverdell ESA: 

1) The designated beneficiary must be under the age of 18 or be considered a special needs beneficiary

2) Contributions to a Coverdell ESA are not deductible on your taxes

3) There are income limits set for any given tax year for making contributions

4) The total contributions to a Coverdell ESA account per beneficiary can not exceed $2,000 in any given year

5) Generally speaking, the designated beneficiary can received tax-free distribution to pay for qualified education expenses (as long as the distributions are not greater than the education expense.

6) Once the Beneficiary reaches the age of 18, no additional contributions are allowed into the account

7) The total value of the account must be distributed on or before the designated beneficiary reached age 30, unless they are considered special needs. 

There are many factors and considerations to take into account when selecting what type of education savings accounts works best for you and fits your financial needs. Reach out to discuss your options. 

Source: irs.gov/taxtopics/tc310