Coverdell Education Savings Accounts
Description
The Coverdell education savings account (formerly known as the Education IRA) was created in 1998 exclusively for the purpose of paying for "qualified higher education expenses" for an "eligible" student. Annual contributions are nondeductible and limited to $2,000 and can only be made until the account holder or designated beneficiary reaches age 18. The ability to contribute to a Coverdell education savings account is phased-out for single filers with Adjusted Gross Income (AGI) between $95,000 and $110,000 and for joint filers with AGI between $190,000 and $200,000. These limits are based on the income of the contributor. The contribution deadline is April 15 of the following year.
Objective
To provide an account that individuals can use to save for qualified education expenses for eligible students.
Suitability
Coverdell education savings account is suitable for any individual within the income limits who wants to set aside dollars for education expenses .
Product Features
- Tax Advantage - Contributions are not taxed as they accumulate and distributions used to pay for qualified education expenses for eligible students are generally not subject to federal income tax.
- Termination Rule - Any balance remaining in the Coverdell education savings account must be distributed or transferred to another family member when the beneficiary attains age 30 or dies.
- Flexibility - Dollars can be invested in a variety of products depending upon the investment objectives of the account owner.
- Penalty for Withdrawal - Distributions that exceed qualified education expenses would be subject to a 10% penalty unless due to death, disability or scholarship.
For more information, please contact your local financial advisor.
