Coverdell education savings accounts (“Coverdell ESA”, formerly called education IRAs) can be used to fund qualified educational expenses. The United States government created Coverdell ESAs to assist families with qualified education expenses. The maximum annual contribution per beneficiary, which beneficiary must be under the age of 18, is $2,000 per year. The amount an individual can contribute is phased out as the individuals’s modified adjusted gross income exceeds specified levels. There is no federal income tax on distributions as long as the money is used for qualified education expenses which includes: tuition, room and board, books, and fees. Unlike many college savings plans, the Coverdell ESA can be used for the costs associated with elementary and secondary schools (public private or religious) as well as college.
Though the contributions to a Coverdell ESA are not tax-deductible, the funds grow tax deferred and distributions from a Coverdell ESA are not taxable as long as the beneficiary’s qualified education expenses for a year equal or exceed the amount of the distributions during that year. To the extent the amounts are includible in a beneficiary’s income, a 10% tax applies in addition to the regular tax. The investment professionals at Savage & Associates can explain the benefits of the Coverdell ESA. We can also discuss the pros and cons of the different types of education savings accounts that are available.
Call 419-475-8665 or fill out our on-line request form for more information or to schedule an exploratory appointment with our experienced professionals at Savage & Associates.