Some Information About Coverdell ESAs

[clydewolf]

Contributions to the Coverdell ESA are not tax deductable. Annual contributions to CESAs are limited to $2,000 per beneficiary. This can be tricky when there is more than one person contributing to a CESA for the same beneficiary, as the contributors may be using different CESAs. No contribution can be made for a beneficiary once they reach age 18.

Your contribution to a CESA is considered a completed gift to the CESA beneficiary. When you are also contributing to a 529 plan for the same beneficiary you need to take all of these gifts into account for gift tax purposes.

Distributions from the CESA are tax free when used to pay for qualified education expenses for higher education and for secondary (K through 12) education. The secondary education benefit privilege will expire December 31, 2010.

For higher education, coordinating the CESA distribution with other tax advantages such as the HOPE tax credit and the Life Time Learning tax credit or the Tuition and Fees Dedcution, may prove to be tricky. The same education expenses can not be used for more than one tax benefit.

In any year, taking more money from the CESA than is needed for qualified education expenses, there may be a 10% penalty and income tax applied to the excess amount distributed.

The CESA must be completely used by the time the beneficiary is age 30.

For convienence, a CESA can be moved to a 529 plan. Because of the higher annual contribution limits, a 529 Plan can not be moved to a Coverdell Education Savings Account.

[clydewolf]

Here is a recent article about saving for education expenses that was run by the New York Times: http://www.nytimes.com/2009/10/05/ed...pagewanted=all