Definition – Education Savings Account
An Education Savings Account is a tax tax-advantaged account allowing the distributions to be solely used for paying qualified education expenses for the designated beneficiary.
It is also known as Coverdell Education Savings Account. This was introduced under the Taxpayer Relief Act of 1997. It was named after the late Senator Paul Coverdell.
The earnings and withdrawals from Education Savings Account (Coverdell ESA) are tax-free if used for qualified educational expenses at a qualified institution. The contributions to ESA aren’t tax-free.
The qualified expenses include the primary school, secondary school, college, and university.
You can open a Coverdell ESA in the United States at any bank or other entity approved by IRS that offer Coverdell ESA.
Coverdell ESA can be opened for any beneficiary under the age of 18 or a special needs beneficiary.
Limits – Education Savings Account (Coverdell ESA)
The maximum limit per year to contribute to one beneficiary in Coverdell ESA is $ 2,000. If having multiple accounts the total should not exceed the given limit.
Contributors can contribute $ 2,000 until the age of 18 and it must be utilized at the age 30. There is an exception for special needs children.
Please note that the contribution made to Coverdell ESA are not deductible.
Who can Contribute to Coverdell ESA?
A single filer who has the modified adjusted gross income less than $ 95,000. If his MAGI is between $ 95,000 and $ 110,000 they will be allowed a partial contribution.
But if the MAGI is above $ 110,000 they cannot contribute to the Coverdell ESA.
For couples filing jointly, their modified adjusted gross income should be less than $ 190,000. MAGI between $ 190,000 and $ 220,000 can contribute partially.
Similar to the above, if MAGI is above $ 220,000 they cannot contribute.
Click the link below to calculate your MAGI:
Modified Adjusted Gross Income Calculator
Benefits of Education Savings Account (Coverdell ESA)
Please see IRS Publication 970 for more information on Coverdell ESA.
We have created some useful tax calculators like Simple Tax Estimator, Itemized Deduction Calculator, 401k Calculator etc.
These templates can help you easily calculate your federal income tax. These templates are free to download and easy to use with no limitations.
Disclaimer: Interpretation of the above topic is for education purpose and cannot be considered as a legal advice. It is highly recommendable to consult a CPA or tax consultant before you plan for Coverdell ESA.
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