Coverdell ESA

	What is a Coverdell ESA? (formerly known as an Education IRA) What are the rules regarding contributions to a Coverdell ESA? Are my contributions tax-deductible? What expenses can the Coverall ESA funds cover? What is the deadline for opening and funding a Coverdell ESA? How do I establish a Coverdell ESA?

What is a Coverdell ESA? (formerly known as an Education IRA)
A Coverdell Education Savings Account (ESA), formerly known as an Education IRA, is an account that helps you save money for the cost of elementary, high school or higher education for a designated beneficiary. You can open multiple accounts on behalf of individuals under the age of 18 and make a non-deductible contribution as long it does not exceed $2,000 per child. Your ESA accounts will grow free of federal taxes and your withdrawals will also be tax-free if you meet the requirements as stated by the Federal Government. For more detail, please visit the IRS website regarding Coverdell ESA regulations.

What are the rules regarding contributions to a Coverdell ESA?
If your modified adjusted gross income (MAGI) is less than $110,000 (or $220,000 if filing a joint return), you may be able to establish a Coverdell ESA. Contributions of up to $2,000 in total can be made per child under the age of 18, no matter how many accounts have been established. Only cash can be contributed to a Coverdell ESA and the contributions must stop after the individual turns 18, unless he/she is a special needs beneficiary.

Are my contributions tax-deductible?
No, contributions to a Coverdell ESA are not tax deductible but will grow tax-deferred until withdrawn for elementary, high school or college expenses. If used for qualifying education expenses, they are withdrawn tax-free. If funds are withdrawn for purposes other than education expenses, any gains will be taxed and a 10% penalty may apply.

What expenses can the Coverdell ESA funds cover?
The education expenses that qualify for contributions to the Coverdell ESA are:

Higher Education Expenses
Tuition and fees
Books, supplies, and equipment
Expenses for special needs services
Expenses for room and board by students who are enrolled at least part-time

Qualified Elementary and Secondary Education Expenses
Tuition and fees
Books, supplies, and equipment
Academic tutoring
Special needs services for a special needs beneficiary
Room and board
Uniforms
Transportation
Supplementary items and services (including extended day programs)
Computer technology, equipment, Internet access and related services

What is the deadline for opening and funding a Coverdell ESA?
The deadline to open and fund a Coverdell ESA is April 15th for any tax year.

How do I establish a Coverdell ESA?
Any bank, mutual fund company, or other financial institution that serves traditional IRAs is capable of serving as custodian of an ESA. Your cash contribution can be invested through the sponsoring institution--stocks, bonds, mutual funds, certificates of deposits, etc. There is no limit to the number of ESAs that can be established for any one child as long as the total contributions do not exceed $2,000 per year. If more than $2,000 is contributed in total, then the excess is subject to a 6% excise tax penalty. You can eliminate this penalty by withdrawing the excess amount before May 31st of the following year, otherwise it will be subject to penalties in subsequent years.